Need help submitting your writing to literary journals or book publishers/literary agents? Click here! →
It’s that time of the year: Flowers are blooming, birds are chirping—and taxes are being filed! At Writer’s Relief, we know tax season can be even more “taxing” for writers who may not be familiar with the ins and outs of what to track or claim. If you’re self-employed and fall into the 1099 or independent contractor category, you’ll want to avoid these common tax mistakes that can cause writers unnecessary grief and aggravation.
The Most Common Tax Mistakes Writers Make
Not claiming deductions or credits
Deductions and credits work in different ways to reduce your tax bill. Deductions are based on your tax rate and can include things like health insurance, home office use, cell phone bills, and/or any expenses you accrue related to your writing business. As an example, if you are in the 10% tax bracket and you have a $1000 deduction, you’d save $100.
Credits are incentives such as earned income credit that reduce tax liability. In other words, if you owe $3000 in taxes but have $1000 in credit, you only owe $2000.
Making the wrong choice about itemizing
To itemize or not to itemize? That’s a good question! Itemizing means forfeiting your standard deduction option. The good news is that you can claim some deductions without itemizing—things like student loan interest and IRA accounts. But if you want to deduct medical bills, charitable contributions, or mortgage costs, you will have to itemize. However, you cannot itemize and claim standard deductions. You must choose one or the other. Making the choice isn’t hard: You simply need to compare totals. If the itemizing total is more than the standard-deduction total, you should itemize. Conversely, if your standard deductions total is more, itemizing will cost you money.
Not remembering that the self-employed must pay both employer and employee taxes
It’s definitely something authors and any other 1099 contractors might wish they could forget—but it will cause a lot of grief if you actually do forget. When you are employed as an employee, half the taxes are paid by the employer. But, hey, guess what? As a self-employed writer, you are both the boss and the worker bee. So you must pay both employer and employee taxes. Yes, it’s a double whammy, but it’s the law.
Forgetting to set aside money for your quarterly payments
The good thing about paying both employer and employee taxes is that you can do this quarterly or every three months. So if you owe $3000 overall, you will need to set aside $750 four times a year. Failing to set aside money for quarterly payments will cause you unnecessary misery at tax time. Just keep in mind that quarterly payments are easier (and a little less painful) to make than a lump sum. More about quarterly payments here.
Tossing out tax-deductible receipts and 1099 forms
Being a disorganized recordkeeper will come back to haunt you at tax time, especially if you plan to itemize. In order to avoid throwing away important receipts, be sure to keep them in a specific place, whether it’s an envelope, a box, a folder in your filing cabinet, or scanned into a folder on your computer. This goes the same for any 1099 forms you receive during the year. Also, it is your duty to report income even if you are not given a 1099 form. Remember: Organization is key to successful filing!
Failing to report your income (yes, this includes PayPal)
This is an error that will not only cause you headaches but could also get you in hot water with the IRS. It’s important to report all your income to the IRS, including PayPal—which has become a popular method of payment. However, PayPal will only send a 1099-K form to the IRS if you:
- Have grossed over $20,000 per year
- Have accepted over 200 payments in a given year
Though eBay owns PayPal, its tax rules differ. So, it’s best to check with your accountant or tax consultant to confirm what you need to claim. This goes for Venmo, Zelle, and any other virtual payment companies out there as well. It’s better to be safe than sorry!
Not filing on time
Okay, this is a big one. Not filing your taxes on time can land you in the IRS hot seat. Failing to pay will cost you 0.5% of the taxes you owe for each month you’re late, while the penalty for failing to file is 5% of the taxes you owe per month (or partial months in both cases). In other words, if you need more time to file, submit Form 4868 and request an extension.
Without a doubt, tax season can be stressful. But avoiding these common tax mistakes should make the experience a little less daunting. Bonus: If you’re curious as to just what you can write off as a self-published writer, check out this article.
Caveat: We’re not accountants or attorneys, and this article is for information purposes only. Always speak to an accountant about your personal tax situation. Tax laws are constantly changing, so always check for the latest updates via official channels.
Question: How do you organize your writing expenses for the tax year?