Reporting your earnings for tax purposes is a required activity when you are becoming self employed as a writer or blogger.
It can not be avoided, but it can be made a lot easier and fun too…
There are a few basic things you can do that will make the end of the year paperwork a lot lighter.
It will also give you more time for writing and putting your heart into what you love, plus make you financially more successful.
The simplest record-keeping method to get a self employed writer would be to use a separate personal account or checking account for your business income and royalties.
Keep the bookkeeping balanced and up-to-date.
Deposit all your earnings to that checking account and pay all your business expenses from that same account.
Nowadays, there are so many large and small transactions that happen everyday 365 days a year. From travel costs, car fuel and all of the apps and widget costs we need for writing online (speaking as an app and software addict myself!)…
You won’t remember all of those expenses later in the year if you don’t write it down, or set up an automated accounting system.
Cash receipts get lost or mislaid, sales invoices may be missed or forgotten, and by the end of the year it is impossible to reconstruct what has happened without a systematically written statement.
This is why I suggest that the bank account is the easiest method to use for a solo business owner or one-man band.
Some accountants are rather cheeky and call it the poor man’s bookkeeping system.
True it’s not very high tech, but it works.
Mileage is another huge problem area for the self employed entrepreneur and writer when you need to attend meetings and promotional events.
Currently, there are two acceptable methods allowed for calculating mileage expense: the actual expense method and the standard deduction method.
Then you must multiply by the percentage of real use for a business vehicle.
For this, you need to know real business miles driven in addition to the total mileage put on the vehicle for the year.
Should you use more than one vehicle, you will need to do a separate calculation for each car.
The other approved method is a standard deduction method. It is a good idea to check the allowable deduction on the HMRC website.
For many people, the standard deduction method works the best.
The accountants who partner with us run the numbers both ways depending on your requirements; the standard mileage method is a reasonable approximation of vehicle cost per mile.
In any event, whatever method is selected, use your calendar, keep an eye on where you go, and why you went there and wrote down the round trip mileage.
You can also write down write down the odometer reading when you started the excursion and the odometer reading when you return.
One nice advantage of writing from home is that travel can be a deducted as an expense if the travel is related to the research involved in your writing.
In the USA and UK the tax authorities offer you the chance to deduct overseas travel when the principal purpose of the travel trip is related to your work.
Travel for a mixed purposes including both research and pleasure need to be carefully documented to establish how long was been spent in research activities and how much of the travel was for enjoyment.
In real life travel situations can be murky, but an established author will know when a trip was used predominately for business reasons.
Hotel, admissions, networking events and other expenses incurred overseas are all usually tax-deductible business expenses also.
There are some specific rules for international travel, and they’re a little tougher when travel is for both business and pleasure.
Meals are deductible in two circumstances: for overnight travel when you’re away from home long enough to require a rest period; or when large business is conducted during before or after the meal.
For example, an іntеrvіеw оr рrеsеntіng а рrороsаl tо а client are typical examples of deductible business meals.
Keep track of who the meal was with and the purpose of the meeting in addition to the cost.
Remember though if you’re across town and stop at a fast food place for lunch and there is no work involved during that time-frame that’s not a business expense.
It is always a good idea to speak to a tax expert when you are becoming self employed and when you need to get a review of your finances.
Did you know that writers can also benefit from the tax laws when doing research?
The tax guidelines explain that you are permitted to write off research expenditures, even though you are not yet receiving any income from the project.
In the US the Internal Revenue Code puts it this way, “they reasonably anticipate they will receive income as a result of their research activities.”
For most creatives and writers the big money manifestations can take some time to appear after the creation.
Isn’t it nice that the tax people have some understanding towards this?
As long as you prepare yourself in advance of any tax deadlines you can minimize your tax bill and really make sure you are tax efficient.
A huge tip is to consider keeping all of your records in the cloud on a digital software system.
Keeping an eye on your income, maintaining a debtors list of what you’re owed, as well as all of the expensive stuff and doing it all totally on an Excel spreadsheet is a huge hassle.
Even though it has the illusion of being simple, it takes up time and mental space so it is actually costing you more.
If you merely write an article or two, as a hobby then it can be different for you.
But if you are planning to stick at your writing and blogging long-term, then it is a smart decision to approach it with the right systems from the beginning.
For those that have a huge website full of articles, and you are selling reprint rights, movie or television rights and have complicated business arrangements, consider a computerized program.
QuickBooks Quicken or other bookkeeping computer programs work really well.
And lastly, operate as a business as soon as you are becoming self employed.
You’re in one, whether you realize it or not, so it is the best mindset if writing is your passion and a focus in your business.
In the words of Rihanna (clean version), “Better have my money! Pay me what you owe me!”
Approach it with discipline for the record-keeping, expenses and chasing after people who owe you money.
Set yourself some written goals and ask yourself if you we’re working for somebody else, other than yourself, “would you ensure all the ducks are in a row?”
Faithful in your success!
To learn more about becoming self employedstart a conversation in the comments below now and a member of our team will be happy to assist you. Or put your question in the comments below.
Hello, my name is Ruth and I'm the founder of TaxTwerk.com. Also the author of the bestselling books 'How to Make Your Tax Sexy' and '12 LinkedIn Messages That Actually Work'. Did you pick up your free gift from me?>> Get Access Here