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Year-End Tax Tips for Writers

‘Tis the Season for Year-End Tax Tips

 Timing can be everything, especially when it comes to taxes.  Here are some year-end tips to help you reduce your 2009 federal income taxes:

 1)      Make charitable contributions by December 31st.  If you itemize your deductions, why not clean out your closets and donate those no-longer-needed items to a charity?  So long as you donate the items by December 31st, you can deduct the donations in 2009.

 2)      Stock up on supplies. If you buy printer cartridges, boxes of paper, and other supplies by December 31st, you can deduct the cost in 2009 even if you don’t actually use the items until a later year.  Note that credit cards and checks are treated just like cash.  If you charge or write a check for items by December 31st, you get the deduction this year even if you don’t pay your credit card bill until next year or your check doesn’t clear until January.

 3)      Prepay your property taxes (or lump them).  Even though your property taxes can be paid through the end of January without penalty, paying them by year end will save you money by giving you a deduction this year.  For those of you who have paid your mortgage down to the point that your mortgage interest, property taxes, and other itemized deductions no longer exceed the standard deduction, here’s a trick to maximize your tax benefits – pay two years’ worth of property taxes in a single year.  To illustrate, assume you have $6,000 in property taxes each year and that you file a married joint tax return.  For 2009, the standard deduction for married joint filers will be $11,400.  If you paid your 2008 taxes in January of 2009 and you pay your 2009 property taxes in December 2009, your total taxes of $12,000 paid in 2009 will exceed the standard deduction amount of $11,400.  Thus, you get a $600 tax deduction you would not have enjoyed had you paid the property taxes in two separate years.  You can also lump medical expenses, charitable gifts, and other itemized deductions into alternating years to maximize your tax savings.

 4)      Prepay subscriptions and upcoming business travel expenses, and buy business equipment before year end so that you can take the related deductions this year. 

 5)      Set up and contribute to an IRA-SEP.  If you are earning a net profit from your writing business, you can set up a retirement plan for your business and make tax-deductible contributions (up to an annual limitation amount).  It’s quick and easy.  All you need to do is prepare a Form 5305-SEP, establish the account at a financial institution, and make a contribution.  Contributions can be made through April 15th of 2010 for the 2009 tax year.  For the nitty gritty, see Form 5305-SEP and IRS Publication 560 “Retirement Plans for Small Business.”

 For more tax tips, see the “Tax Tidbits” page on my website, www.DianeObrienKelly.com.

22 responses to “Year-End Tax Tips for Writers”

  1. Gwynlyn MacKenzie says:

    Excellent advice, Diane. I’m going to give some poor accountant apoplexy when I get published. I’ll be handing the poor fellow a shoebox and saying, “Here you go. Have fun!”

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  2. I’m so jealous! Where I live, I’m pretty sure we can’t claim mortgage interest and property taxes as deductions if you occupy the home. I’ll have to pick my accountant’s brain about that one. (Ew, that doesn’t sound appealing, does it?)

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    • Elisa Beatty says:

      Wow! That’s a bummer! (So you can only take a deduction if you bought the property to rent it out for profit, or some such thing?)

      I SOOOO rely on our home’s mortgage interest deduction to keep our taxes under control each year. i think the deduction was put in place in the first place to encourage home ownership (and, presumably, a more stable, “responsible” citizenry).

      Sorry you don’t get it, too!

      Elisa

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  3. Diana Layne says:

    Oh, some good things to know–the credit card thing treated same as cash purchase. I use a cc for everything to earn reward stuff. Of course I have to be super disciplined to stay within budget, but it’s worth it to tightwad little ol’ me to earn “free” stuff with my purchases.

    and that thing about paying two years of property taxes in one year, I had no idea…

    thanks, Diane.

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    • Tamara Hogan says:

      I always have to remind myself about the ‘credit card same as cash’ thing when it comes to paying for writing classes or workshops – especially now, near the end of the calendar year.

      Even though the online class I just registered for occurs in Feb. 2010, I paid for it this week, so it gets factored into 2009 taxes.

      Thanks for the tips, Diane, and I’ll definitely check out yor website.

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    • Elisa Beatty says:

      Wish I COULD afford to pay two years of property tax in one year…. Luckily, we easily make the standard deduction anyway.

      Taxes, urgh.

      Elisa

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  4. I was just thinking I need to set a day to get everything inorder for filing this year, since this will be my first year claiming my writing expenses. This list is great, Diane. Thanks for posting.

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  5. Thanks, Diane. I can’t believe it’s time to start thinking about taxes again.

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  6. Very interesting post. Would have never thought of some of your tips like prepaying property tax. Didn’t know you could do such a thing. I’d love to see our tax collector’s face if I tried that one. LOL. Thankfully I’m married to a CPA so all I have to do is proof and sign.

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  7. Darynda Jones says:

    This is great, Diane! I’ve been researching all the stuff I can now deduct from my taxes as a writer. I’m no where near understanding it all, but I’ll get there.

    Thanks!!!
    ~D~

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  8. Elise Hayes says:

    Thanks, Diane! I’ll admit I’m fairly clueless about the tax stuff. Hubby and I split financial chores–and the taxes are in his “to do” pile. I’ll let him know about doubling up the property tax–that’s a nifty trick!!

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  9. Jeannie Lin says:

    I so need to get my finances in order. Thanks for the tips!

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  10. Elisa Beatty says:

    Thanks, Diane!

    I’ll be checking out your website.

    A question: can any tax deductions for writing expenses be taken by *aspiring* writers, or must you have some actual “profit” to be able to make claims for things like printer cartridges and mailing expenses (and expenses for attending Nationals)?

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    • Diana Layne says:

      Hi, Elisa,

      I’ve taken my writing deductions for years as an aspiring writer. As long as you can prove that you are pursuing it as a business and not a hobby, then all the tax accountants I’ve heard speak over the years say it is ok. Or if that makes you nervous, you can save up all the expenses for the years and claim them after you sell.

      the other di

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    • Hi, Elisa,

      Yes! “Aspiring writers” can claim their deductions – regardless of whether they have income or not – so long as their writing constitutes a business. I published an article called “At a Loss for Words? Claim Those Deductions” in the Romance Writers Report several years ago that addresses the issue. You can get it by logging into the RWA site at http://www.rwanational.org and then searching my name. The bottom line is whether the writer is truly writing to try to make a profit (whether or not the writer has been successful in making a profit yet or not). Someone who is writing just for fun with no intent to make $ is a hobby writer, and they can deduct expenses only up to the amount of their revenue, which means they can’t claim a net loss. I’ll be teaching an online tax class through the Carolina Romance Writers chapter in January if you want more info (or need something really boring to read to put yourself to sleep at night). : )

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  11. Liz Talley says:

    Great checklist to save. In fact I’m going to print this off and tape it to my desk (so I can find it).

    Thanks, Diane!

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  12. I so don’t want to think about taxes yet. But I suppose I need to. Thanks for the tips, Diane.

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  13. Great tips! I’ve printed them out and put them in my bill folder to remind to try to do some of these things.
    Thanks for the info!

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  14. Tina Joyce says:

    Thanks for the tips, Diane. As much as I don’t want to think about taxes, they’re heading my way whether I want them to or not.

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  15. Oh, Diane! How I wish I understood even half of what you just told us. I’m way too lazy when it comes to my taxes, but this year I’ve decided to do all I can do maximize our deductions. I don’t make much money off my writing, but I do a lot of volunteer work and put a ton of money toward the organizations I work for. I only realized this year that I can take take expenditures incurred while volunteering (including mileage and other goodies) off my taxes.

    That plus my writing expenses might add up to a nice little pop in the taxman’s nose! Thanks for the reminder and advice.

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  16. Addison Fox says:

    Diane:

    Oh, what a timely post!! Thanks for all the detailed information and some wonderful tips on how to handle this very non-creative aspect of our lives.

    Addison

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  17. Great tips! Thanks Diane.

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