1.31.2007

Death, taxes..oh wait, no death (darn) just taxes

Dear Miss Snark,

I'll keep my question short, lest I provide fodder for the clue cannon.

Could you recommend a good book (or other resource, but I like books) about tax laws for writers?

Many thanks for your informative and entertaining blog.

Yes, much like a writer's tax return I am informative and entertaining!

No clue cannon though, sorry. This is a good question. You may try for nitwittery next week.

I don't know the answer to this question since my part in your taxes is limited to sending you a 1099.

I'm sure many of the readers of this blog can help out though.

Weigh in, oh Snarlings of the Ledger sheet!

48 comments:

Brady Westwater said...

Writer's Pocket Tax Guide

http://taxtime.about.com/gi/dynamic/offsite.htm?zi=1/XJ&sdn=taxtime&cdn=money&tm=19&f=00&tt=2&bt=0&bts=0&zu=http%3A//foolscap-quill.com/wptginfo.html

Louise Ure said...

It covers a lot more than taxes, but I'd recommend "The Writer's Legal Companion," by Brad Bunnin and Peter Beren.

Laura E said...

http://www.sleepingbeaglebooks.com/newreleases.html

This link is a how-to guide for US writers when doing their taxes. I haven't used it, but I hear it's pretty good.

Don said...

There's not a whole lot special about writer taxes versus most other self-employment: You'll receive a 1099 for the income and it's reported on schedule C where you will also handle all your deductions and calculate your self-employment tax (schedule C income is still subject to Soc Sec/Medicare, but you get to pay both the employee and employer contributions).

You can deduct stuff like paper, envelopes postage without too much effort. Travel and meals have some limitations. Expensive things that have a life span (e.g., computers, printers, emus* etc.) are usually depreciated, but you can deduct some under section 179. The limit is high enough that for most of us, we don't need to worry about depreciation.

* No, really.

Christine said...

Ask an accountant.
Seriously. Unless you made over $600, any place you sold writing to is not requried to send you a 1099 form. Now, even if you don't get one, you're still required to claim the income. You may have made more than $600, but it was from different people, like if you freelance and sold a bunch of articles. You should be able come up with the number by using the amounts on the checkstubs you received (uh, you saved them, all right)

If your sole source of income (or the majority of your income) is from writing, and no taxes have been taken out, you're self-employed, and therefore need to file a Schedule C (I believe it is, don't quote me) and you MIGHT have to file quarterly instead of annually.

Again, see an accountant, because it can get hairy. If, like me, you've made money writing but also have another job, just claim the income on your form like always. (I'm pretty sure, that's the way I've always done it) and denote where the income came from - usually the 1099, if you get one, will tell you, and it's usually an 'outside contractor' or whatever that one is on the form.

I use Turbo Tax and it does a great job guiding me through all that. When I was a massage therapist I had to do the same thing with the 1099 form, because I was a 'contractor' and not an 'employee' of the spa.

Katmarine said...

Gosh. I choose tax to come out and break my bloginity and worship proudly at the temple of gin. How sad is that? Actually, I prefer vodka in my martinis. I have been lurking for over a year and now all this palarva just to say, if you are a Brit, you've left it a bit late. Today is the witching day for putting in your tax return and paying in blood, even though the drones (how anonymous am I? Should I say heros?) at the Inland Revenue are on strike. All I can add is, as a freelance writer and hack, I can at least claim my rejection SASEs (or SAEs as we call them) against tax, and some of my electricity bills as I read this blog late into the night.

Anonymous said...

I don't know any books, but here are some of the most elementary things to understand and remember. Maybe someone else can then take the issues to a deeper level: I live in the US, so that's what I'm sharing here...

1. Your writing income (advances, royalties, free-lance income), is self-employment income, so if you are not aready doing some form of a Schedule C, you will need to learn to navigate that world. You'll need a business classification code, which, depending on the kind of writing you do, may come under something akin to Consulting or something else. The IRS has a long list; you select the one that fits you best.

2. As a result, you are responsible for taxes on that income. That means you are paying your own Fed. tax, state tax, and the biggest bugaboo -- your Social Security Tax (Self-Employment Tax). Depending on the amount of income and other factors in your life, you can deal with it at tax time or you can pay Estimated Quarterly Tax Payments so you're not hit with a wallop come April !5. Once you start that, however, you need to stay current 4X a year instead of just the one!!)

3. Self-Employment Tax (now at about 13%?; haven't checked) relates to your net income from your self-employment. The Self-Employment (Soc. Sec.) tax cannot be reduced by certain credits that impact your regular Fed. taxes. You will want to identify as many expenses as you can to bring down your net figure.

So, like any business, you need to identify (and yes, be prepared to prove, just in case...) what you have spent in operating that business. Paper. Ink. Pens & Pencils. Books. Continuing Education. Workshops. Computer Service/Hardware/Software. Postage. PO Box rental. Learn about the home-office deduction rules if you work at home. Deduct auto or travel expenses if you drive to meet your publisher/agent/etc. When you meet Miss Snark for lunch at Tavern on the Green, you can deduct 50% of the tab that you OF COURSE! picked up. Do you buy copies of your own book and use them for mktg/advertising? You can deduct that. If you live in back of beyond and need to buy a dressup outfit for meetings, NO, you CAN NOT deduct that. I don't think you can deduct for therapy related to your real or perceived treatment by the publishing industry, either. See Medical Deductions...

4. The Royalty thing is interesting. As I get it, our royalties fall into the same IRS category of Rents & Royalties related to, say, oil drilling exploration ventures. I think maybe those guys get a bit more than we do, but you will not find a distincttion for Literary/Publishing Royalties.

5. Don't get confused by the idea of advances and royalties against advances. Your publisher or agent (depending on your good fortune in having one!) will send you the 1099s for the tax year. Law says you need to receive them by Jan. 31. They also send these to the IRS, so no fudging! If you only made $900 or less in this type of income, you fall beneath the radar, I think.

Hope this helps. If your returns are relatively simple and you don't have too much income (or you have found a boatload of expenses and brought your self-employment income, way down!), be sure to check out the free online returns via the IRS site. It's very easy and very quick and the IRS likes you for having done it! Good karma....

Note; All this comes from my own experience. Only rarely are my tax questions sufficiently complex to seek professional help...

Cynthia Bronco said...

"Yes, much like a writer's tax return I am informative and entertaining!"

That quote is T-shirt worthy!
I'd ask my accountant. Otherwise set aside 22% of your earnings and assume the state and federal gov't will consume them.

Anonymous said...

If these are taxes in the USA the IRS has a website with all kinds of free info you can download. Your state, county, and city taxing agencies have free info as well. Your nearest Small Business Administration office will have more free info, free "consultants", and an assortment of low-fee classes you can take. If you're in Seattle you might still get into the Lawyers for the Arts tax info session. If all that fails, try the library and the bookstore. When you don't see anything titled TAXES FOR WRITERS that's because taxes for writers are the same as taxes for other small businesses. If you study all those resources and still can't figure how the tax laws apply to you, go ask someone who's actually qualified to advise you, like a lawyer, accountant, or IRS info dude, not the Snarkettes.

an accountant said...

In the United States, at least, writers are going to file taxes like any self-employed person, so look for information on that. There are some countries (Ireland comes to mind) where artists are subject to different taxes than other people, or so I've heard, but here in the US that's unfortunately not the case.

If you're going to file taxes like you're a professional writer--deducting expenses related to your writing and writing off your losses--be damned sure you're behaving like a professional writer. Ideally that means you should be earning enough from writing to cover your deducted expenses at the least. I think you generally get a couple years leeway on this (it's a subjective standard), but if your "business" side is taking losses every year, the IRS will eventually call it a hobby and start disallowing your deductions. Even if you're not generating income yet, you're going to have to keep immaculate records, be working on it consistantly (not just when you have time) and in general treating it like a job and not something you do for fun.

If you don't do enough of this to qualify as a business, you can still deduct some expenses, but you can't write off your losses, so if you're not making money, you won't see any tax benefit.

If any of this sounds like gibberish to you, but you really are generating writing income, get thee to a CPA. They'll be able to help. If you're not earning anything yet and don't know when you will be, I'd just pass on it.

an oregonian said...

Find a good accountant who specializes in such things. Accountants all have their specialties, just like any other profession. Ask around a bit, make sure they're certified and whatnot, and that they know the tax law for your particular state (since it varies widely), county, and city.

My guess is that it's not too much different from a small technical writing contracting business (like mine) where my income is based on 1099 forms. Gotta pay your quarterly estimated tax plus miscellaneous local taxes.

If you feel adventurous, get a copy of Fed and State Turbo Tax and let the software guide you (that's what I do). If you feel less sure of yourself, get an accountant and they'll guide you through it.

EGP said...

The National Writers Union publishes a Freelance Writers' guide that has some information about this. Here's a link to their home page, which has a quick link to the book

http://www.nwu.org/

I read this guide about 15 months ago and remember it being good, but I do not own a copy and I can't tell you how expansive the section on taxes is.

Here's a site that gives an outline of taxes for writers that is maybe a notch above the level of detail that would be ideal - use it if it helps:

http://www.forwriters.com/taxes.html

Finally, I did a brief search on Amazon and the 2004 Writer's Pocket Tax Guide is probably the most up to date work they have. I would strongly recommend against using something more than 5 years old as your primary resource, as tax laws change constantly.


Caveat: I have had far more experience with taxes than I ever cared to have, but I am not an accountant.

cheryl said...

Well, if you type in "writers and taxes" in the search box at Amazon, there's plenty of volumes to choose from.

If you google the term, lots of advice sites come up.

However, if you read the instructions for Schedule C at irs.gov, you'll pretty much have all the information you'll need.

Really Wanna Know said...

Yes! And anyone having experience with tax deductions (websites, computers, etc.)as they apply to professional writing -- it would be great to hear about that, too. Thanks!

Anonymous said...

While I would, first and foremost, recommend retaining a tax preparer who is experienced with small business tax returns (since writers are, for tax purposes, generally small businesses), and not doing this on your own, Nolo has a good reputation for presenting legal issues clearly and accurately for non-lawyers. There's a book (I haven't read it, and am just suggesting it based on Nolo's overall reputation) called Tax Savvy for Small Business
by Attorney Frederick W. Daily, which, while not addressing writers directly, would be applicable to a writer's tax return.

There's also Darlene Cypser's "Writer's Pocket Tax Guide," which you can find here:
http://www.foolscap-quill.com/wptginfo.html

I haven't read the current version, but I read an earlier version, and found it both comprehensive and readable (although, as a lawyer, my definition of "readable" may be slightly warped).

Not giving legal advice here, just general information.

Maria said...

Once again, the library is your friend. Any book on owning your own business and self-employment should have a section on taxes. Ask your librarian; she will know where the books on taxes are at, as well as books on setting up your own business and self-employement books.

Most tax software these days also walks you through what you can expense (postage, printing, paper costs) and the other paperwork. I know Turbotax does.

Main gotcha that most people don't know about is that you are responsible for all of the social security taxes because you are self-employed-- ie about 15 percent.


It's a real riot. You'll have...so...much fun.

Poshcat said...

Miss Snark, have you heard that Mr. Clooney and Pamela Anderson might be an item?!?

If it's true, my faith in mankind (or at least Georgekind) will be hanging from a precariously thin thread indeed.

http://showbiz.sky.com/showbiz/article/0,,50001-1249331,00.html

Anonymous said...

Oh, about 185 pounds most days. More when I'm bloated.

(You wanted me to weigh, right?)

Delena said...

It's funny someone should ask this. I get Randy Ingermanson's Advanced Fiction Writing E-Zine, and he was talking about this a few weeks ago.

There's the book "Totally Honest Tax Tips for Writers" by Sandy Cathcart. She's a freelance writer and used to be a licensed tax preparer for Oregon, but I'm sure her info would apply to most states.

Her blog is here and Randy's website is here. There's some really great stuff there.

Take care!

ORION said...

Maui writers conference had a great workshop on the business of writing.
I took their advice when my book sold.
I got a CPA and hired a tax attorney who knows the rules in my state. There are SO MANY rules - regulations - taxes and they vary from state to state and country to country.
You need specific advice with respect to writing, publishing and being an LLC or a sole proprietor.
Lots of advice is free.
...and worth what you pay for it.

Sal said...

Check out the pocket tax guides put out by Darlene A. Cypser, Esq. (licensed in CO and NY).

Online access including all updates for the coming year is $10 or "If you prefer a book, the 2004 paperback edition of the Writer's Pocket Guide includes the 2007 CD-ROM version of the Guide with all the applicable IRS tax forms and IRS publications in Portable Data Format (PDF) format and an addendum to the paper version showing the changes for the 2006 tax year." ($12.99)

Easy peasy look at taxes from the writer's perch. Sample on site.

Sal said...

"A dog who thinks he is man's best friend is a dog who obviously has never met a tax lawyer." -- Fran Lebowitz

ObiDonWan said...

there are no books on tax laws for writers, since writers never have enough income to pay taxes. Try books on tax laws for financial advisors...

Bev Vincent said...

Schedule C is your friend

Here are a couple of good links:

http://www.publishlawyer.com/carousel8.htm

http://www.forwriters.com/taxes.html

Anonymous said...

There's nothing really special about being a writer for tax purposes, unlike any other business, I mean. You have your income and your expenses; simple Schedule C, if you're not incorporated. I'm a CPA; if you have specific questions, I'll be glad to answer them.

Robin said...

I'm no expert, but I did hear along the way that you can deduct writer-related expenses for three years even if you don't make a profit.

Five dollars for an on-line article apparently elicits Class 1 chuckles from accountants of various sizes. Not that I'd know.

wonderer said...

Anyone have any resources for the non-American Snarklings? (Canadian here...)

Madeline F said...

As long as we're talking about taxes: apparently because the USA federal government overcharged on a phone tax, everyone can knock $30 off what they owe for federal taxes, as a one-time thing for 2006. Snopes backs this up. Not half bad.

Bay Dog said...

VERY IMPORTANT -- Check your *STATE* tax law too

If you write your bestseller in California, and then retire to Florida, you will still owe the state of California taxes for as long as you receive income from your book. In other words, at least in California, the income is sourced to California, because that's where the book was created.

This is why many studios are trying to make movies outside of CA--so that they and their actors don't have to pay CA taxes forever and ever.

Anonymous said...

Gawd, all this bad advice. As a writer I do this drill every year, and you do not need an accountant. Just get Turbo Tax. Your royalties are not treated as oil and gas royalties (who was it who came up with that one?) It is self-employment income and you are well advised NOT to take many deductions if you are a writer and not a real business [wo]man. For one thing, the time it takes to tote up all those small payments to Kinkos is worth more than the small tax you will save. For another, loads of deductions put you on the government’s radar screen, right up there with Al Capone and Dennis Kozslowski. Home based businesses tend to be viewed by the tax man as hobbies. Unless you are Norman Mailer and have megadollar royalties (all of which he pays to ex-wives anyway) I tend to agree. Go easy on the deductions. Go very easy.

As for 1099s, they are simpler than the W-2s working people get. But I get royalty statements (that’s what publishers send you) so you may not even have to mess with a 1099 unless you have one of those sleazoid beings called agents. Owww. Now I won’t get posted in the comments section.

If you receive a sizable advance (those granny memoirs seem to be commanding big money nowadays, Satan knows why) you have to pay estimated tax, or else pay Uncle Sam big time for the privilege of banking your own money. No biggie. The forms are simple. Just send in your check before the end of the quarter in which you receive the publisher’s check. Uncle makes it easy to do. Bear in mind if you do get a sizable advance and the book does not earn it you may get a nasty-gram asking for a refund from your once friendly publisher, who now has no further interest in you except to get her (not your) money back. So be careful about that trip to Las Vegas and the new $1m house in the Beverly Hills area code. OJ had to move out of there. You may have to move as well if your book flops or you get sued.

Finally, if you are a typical writer, which I am not (meaning you are a female with zero income who dibble dabbles in writing and makes very little) the IRS would probably prefer you NOT send in a return. Check the instructions, which you can download from www.irs.gov. Your total income (writing plus your stock options as CEO of a fortune 100 company) has to be more than $8000/year or something like that. If you are married to Joe Zillionaire, your joint income is not zero and you do have to report your miniscule writer income on his schedule C.

This is not brain surgery, folks.

Now back to the Great American Novel.

litagent said...

Actually, we are required to submit 1099's for any royalties in excess of $10.00. (Yes, ten) The $600 threshold is for non-employee compensation, which would apply if the writer is an independent contractor producing work-for-hire.

Bonnie Calhoun said...

And to add to what Don and a few others said, the self-employment Schedule form is SE. Self-employment tax is 15.3% but you'll also get to deduct half of your self employment tax...it's line 27 under Adjusted Gross Income.

And one last note...you only get away with NOT filing if the income is less than $400...

M. G. Tarquini said...

Gawd, all this bad advice. As a writer I do this drill every year, and you do not need an accountant. Just get Turbo Tax.

I *AM* an accountant and I totally agree with this guy. You don't need me unless you can't put numbers into little spaces by yourself.

BTW, LOVED the bit about royalties being treated like oil and gas royalties. That set my little calculator a-shivering and my Alpine Spring Water across my monitor.

Go to www.irs.gov and download any info they have on filing a Schedule C. CALL them if you have any questions. That's what they're there for.

Yes. I said to call the IRS. In fact, call them three times, get names, note times and dates. Why 3 times, you ask? To see if you get the same answer each time. They're really quite nice and very helpful and if you call them early in the tax season, they don't get grumpy.

You don't need to buy anybody's book on the topic. It's probably out of date. Your likely business code is one of the entertainment ones. There's one for actors, artists and writers.

Dare I say it? Be honest with income AND deductions. Don't pad. Expense when you can. And you can take a business loss. That's allowed. It will be offset against income from other sources, or carried forward.

You don't need a CPA and/or a tax attorney until you are making money well into the six figures from all sources, including your real job, and/or you have a complex tax situation involving rental properties, multiple states or countries of residency and investments. If any of those investments involve oil or gas royalties, there's an entire section of congress devoted to your needs.

Regarding your state taxes. Spring for the extra 30 bucks and get the Turbo Tax program for all your state. Most state tax law tracks the federal laws. Turbo tax will transfer over pertinent info and ask you salient questions regarding additions and reductions to your state income and deductions.

Questions about state taxes? Call the STATE revenue office. They're usually very nice and they like to feel useful.

Sha'el, Princess of Pixies said...

The New Tax Guide for Artists of Every Persuasion: Actors, Directors, Musicians, Singers, and Other Show Biz Folks (Paperback)
by Peter Jason Riley

and

R. Brendan Hanlon: The New Tax Guide for Performers, Writers, Directors, Designers, and Other Show Biz Folk

and

Gordon, Keith: Tottel's Guide to the Tax Treatment of Specialist Occupations

These books are in print. See your bookseller.

LampLighter said...

Kirsch's Guide to the Book Contract: For Authors, Publishers, Editors and Agents (1998) by Jonathan Kirsch

and

Kirsch's Handbook of Publishing Law: For Authors, Publishers, Editors and Agents (2007) by Jonathan Kirsch

ec said...

Ignore most of what anonymous said. I'm speaking of the post that begins, "Gawd, this is bad advice," which is a pretty fair summation of what follows. Much of what he--and I'm assuming it's a he, given the misogynistic comments--says is wrong.

I've been a working writer for twenty years, and I've never heard of a publisher demanding an advance back if the book doesn't earn out.

Publishers are required to send 1099 forms. If a writer does not have an agent, they will send the 1099 directly to the writer. A royalty statement is not a substitute tax document. (You should, of course, check to make sure your royalty statements and your 1099 forms tally.)

There is no reason NOT to take deductions, as long as they are legitimate and reasonable. I do not take a home office deduction; this is difficult to do because the room I use is not soley dedicated to writing. My husband, who is an accountant, feels that an attempt to justify this deduction would be a red flag, and not worth the time and trouble of an audit. That said, a home office is a legitimate expense, and if you can make a case for it, there's no reason why you shouldn't claim it. As for those small expenses, keeping track of them is not really a big deal, and you should do it--they can add up fast. This can be as simple as having a credit card that you use for nothing BUT business expenses. If you really want to keep it simple, American Express will send you an itemized statement at the end of the year.

If you are a female writer and your tax status is "married filing jointly," then the Schedule C listing your business income is not "his," any more than his freaking W2 forms are "yours." Cluegun, please?

To the CPA who posted earlier: can you comment on how quarterly estimated tax returns should be handled? I believe the advice given in anonymous's post to be faulty, but I'm not 100% certain and don't want to add any more misinformation to this discussion.

The contempt oozing from this post is rather startling, given the poster's assertion that he is a writer. For those of us who are working writers, this IS a business, and should be treated like any other small business.

ec said...

Anonymous: Gawd, all this bad advice. As a writer I do this drill every year, and you do not need an accountant. Just get Turbo Tax.

m.j. tarquini: I *AM* an accountant and I totally agree with this guy. You don't need me unless you can't put numbers into little spaces by yourself.

This was the only point on which I agreed with anonymous. (Well, that and the oil royalties....) Turbo Tax is a good product. Add the state program and go to the IRS site if questions arise, and most writers should be able to cover all the bases.

Christine said...

I only said to ask an accountant because I didn't want to be responsible for bad advice :) but yes, Turbo Tax'll do ya.

I heart Turbo Tax. I have 'contractor' and 'royalty' income, but TT will give you detailed descriptions of what goes where. No problem.

The accountant is right - the laws change faster than the books are written. Get the program. Then every year you can buy the updates.

Anonymous said...

Skip the books; get an accountant. Seriously.

My situation is that I'm full-time self-employed--although it's a mix of novels, freelance articles, and marketing communications, with most of the income from the latter.

I pay my tax guy $550 a year (I'm in a small city in Ohio). It takes me about 10 hours to earn that much. It would take me WAY longer than 10 hours to try to figure out all the tax stuff--although I do have to keep track of expenses throughout the year, which I do in a very simple spreadsheet--not to mention the frustration and the fact I'd be totally confused. I know, because I tried to do my own sole proprietor taxes for 2 years before giving up.

Now, my tax guy (who looks like the Monopoly banker) does the following for the $550: my federal, state and local taxes, my husband's federal, state and local taxes, generating a W2 for my husband (who is a computer guru and I pay him to maintain my computer system), taking care of the tax forms I have to do for paying my husband's taxes on what I pay him, filing my Ohio bureau of worker's comp forms (since my husband works for me), calculating my quarterly payments (federal and state), and a few other miscellaneous forms since my husband works for me.

Um, yeah, 550 is a DEAL! Plus Monopoly Banker Tax Guy comes to my house once a year, sets up his laptop on my kitchen table, gets the pertinent info from me in about an hour, and the rest of the year we work via phone/fax.

He's saved me WAY over 550 a year--example: a few years ago he said, hey, why are you paying other people to take care of your computer when you're married to a computer geek? Pay him... and that still comes off your taxes, but it adds to his future social security, plus the $$ ($3000 a year--which is easily what I'd pay a computer consultant on retainer) stays in your family.

Plus, he also knows all the new laws/deductions and how to keep deductions fair and square in case we're ever audited. (Example: my office space is 6% of our total square footage. So... I can deduct 6% of our utility bill as a biz expense. However, no, says the tax guy, don't take off movie tickets as a biz expense. Too risky if you get audited... even if you say you were hoping to someday write a screenplay.)

Plus his name is on all the tax returns.

Well worth it.

M. G. Tarquini said...

Pub 334 - Tax Guide For Small Business (For Individuals Who Use Schedule C or C-EZ)

Estimated Taxes

Schedule C

Employer Taxes

Pub 553 - Highlights of 2006 tax law changes

Full instructions for form 1040, individual Income tax return

Oil and Gas

Download. Read. Learn. This is your money and your career. No matter what advice you get, good or bad, whether you do it yourself, or pay somebody to do it for you, it's YOUR signature on that return and YOU are responsible for those numbers.

M. G. Tarquini said...

Couple more:

Family Employees

Independent Contractors vs. Employees

M. G. Tarquini said...

One more:

Home Office Deduction

Anonymous said...

Payment to husband: $3,000

Taxes paid on payment to husband: Employer portion of FICA tax: $275.40

Cost of workman's comp for employee husband: x percentage - for argument, we'll say 2 percent.

Total expense per schedule C: 3275.4 plus 2% of $3000 or $3335.40

Total savings: marginal tax rate of joint husband/wife income presuming married, filing jointly. Let's say 28% for sake of argument or: 933.91

Increase in joint tax return: $3,000 of husband's income taxed at joint rate of husband and wife.

Increase in joint tax return for husband's $3,000: $840

Net reduction in income after paying Employer portion of FICA and Workman's comp: 335.40

Net tax savings at 28%: 93.91

Chances husband will ever be able to claim workman's comp. For what? A hangnail while rebooting wife's system?: 0%

Annual cost of brand new fancy laptop in lieu of rebooting and plugging cables into the right spot services: $3,000

Increase in husband's future Social Security benefits: negligible.

Benefit to wife if husband divorces her and marries somebody else: 0

Cost for guy who looks like the monopoly banker: $550

Benefit of having his name on returns: "Them's the numbers she told me, Your Honor. She swore her husband spent 30 hours maintaining her computer systems"

Chances husband is actually Independent Contractor (on retainer) and not employee, which requires him to file his own Schedule C and pay his own self-employment tax, thereby reducing 3000 amount by a further 7.65%: Pretty damned good.

Cost for Turbo-Tax and Turbo-tax for business with state add-on: under $300

Tax savings for same at 28%: $84

That same 3,000 put into wife's SEP plan and allowed to grow, tax free for 10 years at a modest 8 percent: 6476.77

at 10%: 7781.23

Benefit to husband if wife dies: 7781.23

Benefit to husband if he dumps wife and runs off with young gal down the street: 0

Chances of IRS asking for proof that husband actually does anything for that $3000 if wife puts it in a SEP instead, or buys and expenses a new computer: 0

Enlightenment gained from putting a little time in to question Monopoly Banker Guy's advice: Priceless

Carter said...

My Ledger Sheet doesn't just Snarl. It also bites!

Anonymous said...

Elaine Cunningham said: “Ignore most of what anonymous said.”

No, folks, ignore what Elaine said. Writing off your house payment and electric bills, hiring your spouse, and all that, is asking for trouble. You can certainly depreciate your car if you want (after all, you have to make an occasional trip to the post office.) But if they decide to go after you, it won’t be worth it. I read a book some time ago which suggested people hire their dog as a security guard and pay the critter $25/hour, which at 168 hours a week turns into a nice tax deduction. It will also get you a stay in Leona Helmsley’s old jail cell or an astonishing bill when they figure in penalties and interest.

I would encourage anyone to take a strict pragmatist rather than idealistic stance toward taxes. To a pragmatist, being right or wrong means nothing. The only thing that matters is being free. I pay taxes for the sole purpose of staying out of jail and for no other reason. To that end, I report my income honestly, file on time, and do not play games such as “hiring” lovers, writing off my rent, or depreciating my eyeglasses, or employing my dog with salary and benefits. Actually, I don’t have a dog, but don’t tell any of the local hooligans. If you play games with Uncle Sam, you are playing Dungeons and Dragons, as in you are likely to end up in a dungeon being attended by dragons.

As for her statement that “Publishers are required to send 1099 forms,” I get royalty statements every year from a major house and they seem not to have heard of this. I have also got loads of checks from magazines, etc, and nary a 1099 among them. I am not an independent contractor and do not see these forms unless I am doing corporate consulting, which is something different from writing. (For one thing, it pays more.) Game manufacturers may consider the people they hire to write some of their stuff contractors, which is different.

The contempt oozing from her post is rather startling, given her assertion that she is a writer.

Anonymous said...

I'd just like to add a note for the kiddies, or the twenty-something-no dependents-no mortgage folks:

Learn to do your own taxes now, while they're simple. Then, as your life gets more complicated, learn the additional forms. I'm learning about HSAs this year, learned the Schedule C a few years ago, along with the SE.

I spent the afternoon talking my 20-yr-old sister through the 1040EZ. Please, it's not complicated. I watched my first (and only) tax preparer fill out my forms when I was 18. I've been doing them myself for 17 years since then. (Yes, my mom is crazy for having more kids when I, her then-youngest, was almost grown.)

I am not an accountant. I am not a tax pro. Yet, I can accurately file self-employment and corporate forms because...

here's the kicker...

I can read and comprehend.

Anonymous said...

Oh God how I love Ireland. Next time I want to bitch about house prices or political corruption or whatever, I'm gonna come here and read this thread.

We have the Artists' Exemption scheme. If you write fiction, or some kinds of non-fiction, you fill in a one-page form that I'm not kidding my cat could handle with ease, and then you don't pay taxes on your income from writing.

blissbat said...

Anonymous, you may well be right, but you're still not coming off well. You're speaking to an adults of adults, not "kiddies," and your puffed-up assertions about the "average writer" make you sound like an insecure jerk.