ArcticLlama Freelancing Blog

Every year, thousands of people start down the path of becoming freelance writers. Some of them "make it" and become full-time freelance writers, some of them keep their old job and become part-time freelance writers, and some people take on a project or two and then drop out completely. Regardless of what type of freelance writing year they had, all of these freelancers have one thing in common, they have small business taxes to look into.

For a professional freelance writer taxes are a year-round concern. Writers making more than a small amount of money over the course of the year likely owe quarterly estimated tax payments. And writers earning $50,000, $75,000, or even $100,000 per year have to focus on squeezing every business deduction they can out of any transaction that is even remotely related to their small business or risk being crushed under the burden of taxes.

Self-Employment Tax and Small Business Owners

The worst of all the taxes inflicted upon hard working Americans is the self-employment tax. While millions of people get up in arms about the estate tax, which most of them will never pay, any American who has the nerve to go out, work hard, and succeed in business for themselves will find themselves struggling with the onerous burden of the self-employment tax.

Self-employment tax, also referred to as SE tax, is a bit of a misnomer. What SE taxes really are is the double-whammy of paying both parts of Social Security taxes and Medicare taxes.

Most people are aware that they lose a significant part of their paycheck each week or each month to a wide variety of taxes. There are Federal income taxes, state income taxes, and some poor souls even pay local income taxes to a city or county. Then there is another category of taxes. These taxes are Social Security taxes and Medicare taxes.

The government and the special interests that they serve do a wonderful job of obfuscating, spinning, and flat out tricking the American public into a compliant daze simply by using a little misdirection. The words Social Security never appear on most paystubs, a subtle, but effective way of dissociating the pain of paying taxes from the Elysian Fields of government funded retirement. Instead, Social Security taxes are usually labeled FICA on worker’s paystubs. I’m sure this stands for something in order to make it seem like there is no slight of hand going on, but most people would understand the words Social Security Tax much better, and everyone knows it.

Over the years, the secret of FICA has all but disappeared. There are few people these days that don’t know what FICA is. However, what many people do not know, is that the FICA taxes that show up on their paycheck is only half of the total Social Security tax. The rest is paid by their employer.

As an entrepreneur who works for yourself, you are both the employee and the employer. Add it all up and the SE tax rate is 15.3%. That is 12.4% for social security and 2.9% for Medicare. That doesn’t sound so bad until your realize that this amount is on top of your regular tax bracket rate!

If you do well enough in your business to be in the 30% tax bracket, that means that your tax rate for Federal tax purposes is over 45%. That doesn’t even include any state or local income taxes. In other words, as a successful freelance entrepreneur, you can expect to pay half of every dollar you earn in taxes.

Your only defense is to deduct as many business expenses as possible.

Business Tax Deductions for Writers

Don’t wait until you are earning more money from your writer to start deducting your professional writing expenses. Uncle Same won’t wait to start taxing you, so do wait to start trying to get a little bit of your hard earned money back.

Top 10 Tax Deductible Items for Writers

1. Computers, Printers, Monitors, etc. – If you need it to write, you can deduct it.
2. Office Supplies – Paper, toner, dictionaries, books, light bulbs. – If your office wouldn’t function without it, it’s deductible.
3. Broadband Internet Service – You need the Internet for research, job hunting, submitting projects. Deduct it.
4. Equipment – Filing cabinets, desks, chairs. These bigger expense items are all deductible. Don’t worry about depreciating them. Unless you are really cranking out expenses, they’ll all fit under your Section 159 exception.
5. Cell Phone, Long-Distance, Skype – If you call clients, talk to prospects, or participate in conference calls, that is deductible. There is an issue of personal use if you don’t have a separate line, but keep records, especially those long-distance bill for a 45 minute conference call. Those are all legitimate expenses.
6. Mileage – Any time you go anywhere for business reasons, that mileage is deductible. Trips to Office Depot for toner count, so do trips to see clients, driving to conferences, even a trip to Kinkos. Get one of those little mileage books and keep one in every car you own. Write down EVERYTHING and deduct every single foot.
7. Parking – Save your parking receipts and deduct, deduct, deduct. Here is a dirty little secret, parking receipts contain very little information, so it is almost impossible to disallow them as non-business expenses. When in doubt, deduct!
8. Eating Out, Entertainment – O.K. not everything qualifies, and going overboard here can get you flagged for an audit. However, anytime you entertain clients or potential clients you can deduct those expenses. You and your buddy went to the ball game? He’s the V.P. of Marketing at a Fortune 500 Company? Deduct the cost of those tickets, baby! Make sure and ask him if he has any projects for you at some point during the game. Again, don’t go crazy, but if you’ve got $50K in revenue and $800 in entertainment expenses, no one is going to look twice.
9. Home Office Tax Deduction – Once upon a time, the home office deduction was an audit flag. Not anymore. Setup a writing office in your home and you get to deduct not only part of your mortgage payment, but part of your heating bill, electric bill, and so on. Technically it has to be for business only, so get some proof. Take pictures of your home office without a single non-business item in it. Make sure you can see a calendar or something else with a date. Take a picture every year. Use them as proof. What if you get audited? There is no such thing as a surprise audit. Clean up your office and make it for business only. Or, if you don’t want to bother, say you stopped using it for business this year.
10. Education, Seminars, Training – Regular wage earners have to meet the miscellaneous 2% floor to deduct these things. Have "the business" pay for them for you and then you can deduct them from the first dollar. Get a business credit card to help establish who paid for it. If you don’t have one, just make sure that the address on the confirmation goes to: Your Name, Your Business Name, Address, just like it would if they were sending it to IBM.

Good luck with your end of year tax planning strategies.

I’ll be back with more tips for year end tax savings and things you can do with your business all year long to save money on taxes.

******

******

When it comes to writing, there are numerous kinds of people who do it. There are professional freelance writers, there are both published novelists and unpublished novelists (more nicely referred to as aspiring novelists), journalists, copywriters, hobbyists, poets, experienced writers, novice writers, work from home Moms, work from home Dads, online writers, offline writers, screenwriters, academic writers, student writers, both willing and unwilling, and so on and so on and so on. We haven’t even talked about the different kinds of people that become writers professionally or otherwise.

Yet, among all the different types of writers, there are some writing essentials that stand out. These things are writing helpers, writing stimulators, or writing tools that every author needs to successfully write great material, whatever that may be. As Christmas time approaches, I’ll be looking to put together a list of the Best Gifts for Writers, or Top Christmas Gifts for Writers, or whatever, the keyword research looks like I should title it. In the end, however, it will be a current listing of some of these items, as well as some great gadgets that writers need. So, without further ado, here are some of the things every writer must have.

Top 5 Things Every Writer Needs

1. Computer AND Laptop or Netbook for Writing – It sounds like a luxury, but when it comes to being a serious writer, it isn’t. There is simply no way a real writer can go through life writing in only one place. That means that either the writer lugs around a notepad or note cards or something else to write down all of their writing ideas, or they get mobile with a laptop or netbook. Thinking about just using a laptop? It sounds good on paper, but a power writer needs a powerful writing platform. They need something that will keep up a dozen tabs in Firefox (or Chrome), a handful of Microsoft Word documents, an Excel spreadsheet or two, a calendar application, and an email application (Outlook does them both, but uses enough resources to be two apps), and a handful of other utilities like a clipboard manager, a reference system, and a screenshot capturing utility. Plus, really writing and banging out article after article or 50 pages of a novel each day, takes a full-size monitor and a full-size, responsive, feels good to the touch, keyboard. Do they make laptops with all of this? Sure they do. They cost $3,000 and they weigh ten pounds (with the charger and laptop case you’ll need to carry.) In other words, you can get it all in something that isn’t really very portable, which was the point in the first place. A powerful laptop will let you work from any room in your house, and it will let you work from any Starbucks or coffee shop you like, when you plan to go out and do some writing, but it will fail you miserably when you are strolling across a college campus one morning when inspiration hits while you weren’t really planning to write. That means a run back to your car trunk, or back to that old pen and paper thing.
2. Notebooks, Notepads, Notecards, Journals, Blank Paper, etc. – Being able to whip out a laptop or notebook and write on the go, is the writer’s Utopia. However, that doesn’t mean that a writer never wants pen and paper. Certain things just suck to do on a computer or in some sort of application or utility. There are a hundred mind-mapping utilities out there, and none of them lets you brainstorm as fast or well as a piece of paper and a pen. Sometimes, the words are just flowing out of your brain, and your PC or laptop is just getting in the way with its mouse and keyboard and backspace key. At times like these, you need a pen and paper. Plus, things get lost inside of computers. Microsoft OneNote is a great note taking and organizing program, but its bloated and jammed full of icons. Just starting it up can be a nuisance, even if you let it run its little pre-start icon in the background. Besides, for all of its many features, nothing has ever duplicated the ability to just flip through a notebook or shuffle through a stack of papers giving each page a quick glance until something leaps off the page and slaps you in the face. If you ever need to come up with a gift for a writer quick and cheap, buy them a notebook. Buy a nice looking one with a solid cover and quality spiral rings (or binding if they prefer). Quality spiral notebooks have spirals that are horizontal across the notebook, not ones that wrap their way diagonally up the spine.
3. Wireless Keyboard – When I first saw wireless keyboard I thought they were a waste of money. I didn’t figure they were any worse than regular wired keyboards, I just couldn’t see the value. That scene in the movies where the writer or computer hacker has the keyboard on their lap while they bang away is the creation of someone who only writes an hour or two each day. A serious writer that cranks out hours of writing at a time can only sit like that for a short while. Then your back starts to hurt, your wrists start to feel like they are getting carpal tunnel, and you find yourself blinking a lot to try and get rid of dry eyes and computer monitor eyestrain. A real professional writer has spent a lot of time on an exact setup that positions the light, the monitor, they desktop, and the keyboard in specific places at specific angles and specific heights. (And if you EVER see someone typing with one hand, just call Bulls*t right away. Two hands isn’t enough fingers to write fast enough for most writers and work a mouse, let alone being able to type with one hand. Try it sometime.) While all of that is true, there is nothing better than being able to position your keyboard exactly where you want it at any given time without having to worry about pulling the cord, spilling your coffee, or knocking over your kid’s picture on your desk. Push it back to set down a book in directly in front of you, then bring it back to the edge when you are feeling lazy and sloppy. And, yeah, every once and a while, drop that sucker in your lap and type out some emails or play games. (By the way, get the wireless mouse to go with it at the same time. It’s cord is even more problematic and by getting a matching set, you only have to have one USB wireless receiver plugged into your PC.) Thinking about buying a computer gift for a writer or just a present that is directly related to writing? A great Christmas gift for your writer loved one is a wireless keyboard and mouse set. For my money, buy a Logitech wireless keyboard. The construction is solid, it works well, and the utility that comes with it is functional, unobtrusive, and small.
4. Dictionary, Thesaurus, AP Stylebook, and The Chicago Manual of Style – Any writer with even a year of experience already has all four of these items and is NOT interested in getting a new one. There are plenty of online dictionaries and thesauruses, and we know all about them. They just aren’t the same. Sometimes, it seems like they can’t really be trusted, and other times it seems like they are missing something. Even worse, sometimes they have too much, with things that aren’t really universally recognized. When my Webster’s New World Dictionary doesn’t have an entry for "jackassery", I accept that it isn’t a real word.  When it is missing from webster.com, then I wonder if I just need a "better" dictionary. If it is on some online Scrabble dictionary, then I don’t really know if I can trust it. I will go ten rounds with an editor who won’t let me use a word that shows up in the big 10-pound dictionary I have, but there is no way I’m going stick my neck out for the adverb form of a word that is on ReallyGreatAmericanWordsThatAreSpelledRight.com. – By the way if you are looking for the best gifts for writers, DO NOT buy them one of these books unless you know for sure they don’t already have one. New edition or not, we come to love our resource books like members of the family and we don’t need some new one taking up space on the "books we never actually use" shelf.
5. Fast Internet Connection with Wireless Home Network – To be more specific, a wireless home network that doesn’t get dropped and broken by Microsoft Windows even if our computer sleeps or hibernates! (Jerks. Don’t include a feature if it isn’t going to work with 99% of the hardware out there. We have better things to do than figure out the 1 in a million way you have designed your software to work.) And, we need a fast Internet connection that is always fast and always working, not one that is fast as long as no one is home and not using it. Good copywriters are responsible for that shifty, sneaky, language that the phone companies and cable companies use to market their DSL and cable internet. Good writers know exactly how to read it too, and we are not amused. Up to 7 MB per second does not mean that we get 7MB per second 24/7 and we understand that, but it also does not mean that sometimes we’ll get 1 MB per second or LESS! Up to means that it will peak at and stay close to that speed. If I knew how to do it, I’d set up class action lawsuits against every telecom company in this country that offers "up to" a certain speed and then actually provides something that is half of that. I think one could make a pretty good argument that such wording is both deliberately deceptive, and uncompetitive. Otherwise, where does it stop? I could start marketing Internet service tomorrow at speeds "up to 5,800 GB per second," and when you get 0 (because I don’t have an Internet company) that would just be too bad, because I said "up to." Sounds like fraud doesn’t it? That means that there is a number at which the promise is too high and the delivery is too low. I say we contest where the telecoms choose to set it.