You’ve finally done it. You’ve taken the plunge and sold your writing to magazines and other content distributors. The money has allowed you to take a vacation, remodel your home,or if you’re lucky, quit your day job. But your dream can turn into a nightmare come tax time.
As a freelance writer, you are self-employed. If you receive any wage statements, they will be in the form of a 1099, but don’t count on receiving them from all of your jobs. That’s where your good records keeping skills come in. You did keep good records, didn’t you? You must account for each job and all money you receive from each client. Make note of each payment you receive and total your payments for your gross income. If you kept bank statements, check stubs and invoices, this step should be painless. You may even find yourself pleasantly surprised by the amount of money you brought in.
After you calculate your gross income, it’s time to figure up your deductions. This can be tricky as they is a lot of gray areas about what is a legitimate business expense. Stationary, letterhead, business cards and stamps are all examples of safe deductions. You can also deduct gas if you had to travel for research. Did you buy writing books or take a writing workshop last year? Those expenses can be deducted as well. Did you buy a new computer? That’s where things get tricky. According to the IRS, you can only deduct a percentage of the purchase based on usage for your business. For example, if you buy a new laptop for $1000, and you spend half of your computer time working on your freelance writing business, you can deduct 50% of the total price of the computer. If you have room in your home to set up a separate writing area, you can deduct percentages of rent and utilities as well. If you do your writing in the dining room, then you can’t claim the home office deduction.
After you have determined your deductions and business expenses, subtract your them from your gross income to determine your net profit or loss. You will need a copy of 1040 Schedule C to record your business sales and expenses. If you meet certain requirements you may elect to use Schedule C-EZ. If you had net earnings of over $400, you must also file Schedule SE for the Self-employment tax. These forms should be attached to your 1040 tax form. If you have extensive deductions or this is your first year to file taxes as a freelance writer, it may be in your best interest to contact a tax professional for help with your taxes.