Working for yourself as a freelance writer can be a nickel-and-dime business, but come tax time, reporting self-employment income means all sorts of things related to your business are eligible for deduction. Consider this: before self-employment deductions, I owed $266; after the deductions, my refund was $238. I consulted H&R Block tax specialist Sharon Burton on how to maximize your savings for 2009 and what to consider in 2010.
Guest column by contributor
Jessica Monday, published freelancer
and aspiring novelist. She lives in Wyoming.
E-mail her at jemonday[at]gmail.com.
Some of the biggest deductions are tied into whether you can claim a home office. The IRS says a home office “is a room or other space in your home” used regularly and exclusively for business. As long as your work area is a separately identifiable space, that portion of the room is deductible even if you don’t use the entire room for your business, Burton said.
The key to this is not so much how much space you use, but rather how you use it. If you consistently write and sell your writing each month, that constitutes "regular use." The trickier part is you must use the area only for business. So if you generally write at the kitchen table (which is not a station used only for business), find a cheap desk at a garage sale, move it into a corner and voilá - you can claim the area as your home office. But remember: No paying bills or letting the kids do their homework in your work space (which is a nice way to create a little solitude for your art too!).
Now you may think, a desk tucked away in a 5,000 square foot house is not going to amount to much—and it’s not. But if you have a large desk in a more modest abode, the savings do add up. For instance, I have a desk, computer and filing cabinets set up in a shared office room with my fiancé. I measured how much of the room they occupied and approximated the total square footage of our apartment. Since my home office equals 5% of my total home, I’m able to claim 5% of the rent (same thing goes for a mortgage), utilities, renter’s (or homeowner’s) insurance and Internet connectivity fees. (If you file your taxes online, the computer will figure the percentage for you given the square footages.)
Tip for 2010: If you're trying to sell your home, deductions on the mortgage for a home office may have tax consequences after the sale. You may still be able to write off a portion of the utilities without a penalty, but be sure to talk with a tax professional before filing your return.
If you use a personal vehicle for freelance work, a portion of the mileage is deductible. You can choose one of two methods, standard or actual, to report vehicle expenses, but “it’s always better to do standard miles,” Burton advised. “That way you don’t have to keep receipts, you only have to record your mileage.” This year, the IRS gives 55 cents for each business mile you drove, as well as itemized deductions for license plates, registration, interest on a vehicle loan, parking fees and tolls.
Tip for 2010: Keep a small clipboard in your glove box to write down business mileage, as well as the odometer reading on Jan. 1 and Dec. 31.
Cell phones and monthly bills are deductible even if their main purpose is for personal calls. Unless you have a separate cell phone used exclusively for your business, Burton advised keeping track of the number of calls rather than adding up minutes. Normally people spend between 10-20% of their minutes on business calls, Burton said.
Tip for 2010: Track your cell phone usage for a month (or one week if you make a lot of calls). Find the average minutes used for business calls and compare the portion to your total monthly minutes. Use your average to figure the percentage use at the end of the year.
If you pay your own health insurance, monthly premiums are deductible. (At least that’s some relief until they figure things out Washington, right?)
BIG, LITTLE THINGS
More costly equipment like a computer, printer and fax are deductible, but don’t forget about office supplies including stamps, pens, printer paper and ink. Small purchases add up after 12 months. Other deductible items include business membership dues, magazine and newspaper subscriptions, conferences fees, hotel rooms and associated meals, and bus and cab fares. Remember, all expenses must be related to your self-employment. If you’re not sure an item qualifies, seek professional advice—and keep all of your receipts. “That’s the big thing, just keep track of everything,” Burton said. “The flow in and flow out.”
Tip for 2010: Start a new file for the year and collect your receipts, tax forms and any other paperwork useful come tax time.