♥ Romancing the IRS ♥ Jean C. Gordon

Make Writing Your Business ♥ Business vs. Hobby Business losses deductible Hobby losses nondeductible Profit in 3 of 5 last years

Make Writing Your Business ♥ Facts and Circumstances Nine factors No one factor controls Other factors considered Not a matter of numbers

Make Writing Your Business ♥ Facts and Circumstances How you approach writing Writing expertise Time and effort

Make Writing Your Business ♥ Facts and Circumstances Success with similar activities History of income or loss Amount of profits

Make Writing Your Business ♥ Facts and Circumstances Expectations that assets will appreciate Your financial status Pleasure or recreation involved

Watch for Deductions ♥ What’s Deductible Ordinary expenses Necessary expenses

Watch for Deductions ♥ Ordinary and Necessary Professional fees and dues Continuing education Telephone expenses Supplies Travel

Watch for Deductions ♥ More Ordinary and Necessary Equipment One-half self-employment tax Home office expenses Health insurance premiums Miscellaneous

Watch for Deductions ♥ Professional Fees and Dues RWA dues Chapter dues Other writers’ associations

Watch for Deductions ♥ Continuing Education College courses Online courses Materials and supplies Photocopy expenses Books for research Conference/Seminar fees Textbooks

Watch for Deductions ♥ Telephone Expenses Cell phone FAX transmissions Toll calls

Watch for Deductions ♥ Supplies and Expenses Business cards Website development & hosting Computer software & supplies Online charges Postage & shipping FAX supplies

Watch for Deductions ♥ More Supplies and Expenses Photocopy expenses Stationery Equipment repair Gifts & greeting cards DVDs, films & videos for research Clerical help

Watch for Deductions ♥ Travel Expenses — Car Between jobs or locations Publisher/agent meetings Purchasing supplies Professional society meetings Parking fees and tolls

Watch for Deductions ♥ Travel Expenses — Car Actual expenses 53.5 cents per mile 2017 54.5 cents per mile 2018 Additional for tolls, parking. Not just conferences: meetings, interviews, research.

Watch for Deductions ♥ Travel Expenses — Out of Town Airfare Car rental, taxi, bus, train Parking & tolls Lodging Meals Tips Phone calls

Watch for Deductions ♥ Equipment Purchases Cell phone Copier Calculator Recorder Computers & printers Modems & computer peripherals Desk and other office furniture

Watch for Deductions ♥ Equipment Purchases Depreciated: over 5 or 7 years Section 179 expensing: up to $500,000 for 2017; $1 million for 2018 2018 Deduction Limit = $1,000,000 (one million dollars) This deduction is good on new and used equipment, as well as off-the-shelf software. To take the deduction for tax year 2018, the equipment must be financed/purchased and put into service between January 1, 2018 and the end of the day on December 31, 2018. 2018 Spending Cap on equipment purchases = $2,500,000 This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced on a dollar for dollar basis. This spending cap makes Section 179 a true "small business tax incentive" (because larger businesses that spend more than $3.5 million on equipment won't get the deduction.) Bonus Depreciation: 100% for 2018 Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached. Bonus Depreciation is available for new and used equipment. The above is an overall, "simplified" view of the Section 179 Deduction for 2018. For more details on limits and qualifying equipment, as well as Section 179 Qualified Financing, please read this entire website carefully. We will also make sure to update this page if the limits change. Here is an updated example of Section 179 at work during the 2018 tax year.

Watch for Deductions ♥ Self-employment taxes Social Security Medicare 6.2%/12.4% self-employed Up to $127,220 in 2017; $128,700 in 2018 Medicare 1.45%/2.9% self-employed All income 7.65% and 15.3%

Watch for Deductions ♥ Home Office Expenses Deductible mortgage interest Real estate taxes Homeowners insurance Utilities Repairs and maintenance Depreciation

Watch for Deductions Safe Harbor Method Square footage up to 300 x $5 Limited to $1,500 a year No depreciation Can deduct mortgage interest and taxes No rental use Can change choice yearly

Watch for Deductions ♥ Miscellaneous expenses Business liability insurance Subscriptions Resume preparation

Watch for Deductions ♥ Retirement plan contributions Self-employed plans Employer-sponsored plans Individual retirement accounts

Retirement Savings Plans ♥ Getting started Accountant Financial planner Stockbroker Bank investment officer Mutual fund companies An accountant, financial planner, broker, bank investment officer, or insurance representative can help you determine which is best for you. Most types of retirement plans can be set up with mutual fund companies.

Advantages of tax deferral ♥ Tax savings Why do you want to invest for retirement in a qualified retirement account instead of a regular bank or brokerage account? To gain the tax lowering advantages of tax deferral. You don’t have to pay current income tax on your account’s earnings and, with many plans, you don’t have to pay tax on your contributions, either. You generally will have to pay income tax on withdrawals during retirement, but many people are in a lower tax bracket then $5,500 a year contribution

Filing Your Return ♥ Forms and schedules Schedule C-EZ or C (profit or loss from business) Form 4562 (depreciation and amortization) Form 8829 (business use of home) Schedule SE (self-employment tax) Once you have all your income, deductions and credits, you’re ready to report them to the IRS. The following are the most common forms writers need to file. You may not need them all.

Estimated taxes ♥ Federal taxes State income tax Income Self-employment (15.3%) Pay online (http://www.irs.gov/uac/EFTPS:-The-Electronic-Federal-Tax-Payment-System) Increase withholding at job State income tax When To Pay Estimated Taxes For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return, see underpayment of tax below for more information. Using the EFTPS system is the easiest way to pay your federal taxes for individuals as well as businesses. Make ALL of your federal tax payments including federal tax deposits (FTDs), installment agreement and estimated tax payments using Electronic Federal Tax Payment System (EFTPS). If it is easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you have paid enough in by the end of the quarter. Using EFTPS, you can access a history of your payments, so you know how much and when you made your estimated tax payments. Underpayment of Estimated Tax If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. There are special rules for farmers and fishermen. Please refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.

Estimated taxes ♥ When to pay January 15 (Sept. 1 to Dec. 31) April 15 (Jan. 1 to March 31) June 15 (April 1 to May 31) Sept. 15 (June 1 to Aug. 31)

Estimated taxes ♥ Avoiding penalties Annualize Owe less than $1,000 Paid 90% of current year’s tax Paid 100%/110% of last year’s tax, if less Generally, taxpayers have to pay equal payments and can be charged an underpayment penalty for any quarter your payment is short. But if you receive income unevenly during the year, as authors usually do, you may be able to avoid or lower the penalty by annualizing your income and making unequal payments. 2017 and 2018: Adjusted gross income $150,000 or less ($75,000 married filing single) = 90% AGI greater than %150,000 ($75,000) 110%

Tax Cuts and Jobs Act ♥ Mostly individual taxes Tax rates lowered $4,050 (in 2017) personal exemption eliminated Child tax credit doubled to $2,000 New $500 credit for non-child dependents like elderly parents Today's rates are 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. -- 10% (income up to $9,325 for individuals; up to $18,650 for married couples filing jointly) -- 15% (over $9,325 to $37,950; over $18,650 to $75,900 for couples) -- 25% (over $37,950 to $91,900; over $75,900 to $153,100 for couples) -- 28% (over $91,900 to $191,650; over $153,100 to $233,350 for couples) -- 33% (over $$191,650 to $416,700; over $233,350 to $416,700 for couples) -- 35% (over $416,700 to $418,400; over $416,700 to $470,700 for couples) -- 39.6% (over $418,400; over $470,700 for couples) Here's how much income would apply to the new rates: -- 10% (income up to $9,525 for individuals; up to $19,050 for married couples filing jointly) -- 12% (over $9,525 to $38,700; over $19,050 to $77,400 for couples) -- 22% (over $38,700 to $82,500; over $77,400 to $165,000 for couples) -- 24% (over $82,500 to $157,500; over $165,000 to $315,000 for couples) -- 32% (over $157,500 to $200,000; over $315,000 to $400,000 for couples) -- 35% (over $200,000 to $500,000; over $400,000 to $600,000 for couples) -- 37% (over $500,000; over $600,000 for couples)

Tax Cuts and Jobs Act ♥ Mostly individual taxes Standard deduction raised from $6,350/$12,700 (2017) to $12,000/$24,000 State and local tax deduction limited to $10,000 For new homeowners mortgage interest deductible on only first $750,000 vs $1 million debt

Tax Cuts and Jobs Act ♥ Business tax changes Corporate tax rate reduced from 35% to 21% Special provision for businesses – like most writers – with pass-through income Pass-through income taxed at individual rates

Tax Cuts and Jobs Act ♥ Pass-through provision New 20% deduction on pass-through income Sole proprietors Partnerships Limited Liability Companies S-corporations

How the Deduction Works ♥ Applied to the lesser of Eligible business income or Taxable income (before the deduction) Minus any capital gains

How the Deduction Works ♥ Example One Author has a “day” job with a $100,000 salary Also earns $50,000 from writing Taxable income after standard deduction and SE taxes is $133,500 20% deduction applied to the $50,000 Example 1: Jack, a single taxpayer, has a “regular” job where he earns a $100,000 salary as an employee. He also “moonlights” as a consultant and earns $50,000 of net profit via his Schedule C sole proprietorship. Now suppose that after accounting for deductions for self-employment taxes and the standard deduction, Jack’s taxable income is $133,500 (before application of the pass-through deduction). Here, Jack’s business income of $50,000 is less than his taxable income of $133,500. As a result, the 20% pass-through deduction will be applied to Jack’s $50,000 of business income, resulting in a $10,000 ($50,000 x 20% = $10,000) deduction.

How the Deduction Works ♥ Example One Writer earns $100,000 writing Taxable income after standard deduction and SE taxes is $73,000 20% deduction applied to $73,000 Example 2: Jill, a single taxpayer, is a real estate agent who earns $100,000 of net profit via her Schedule C sole proprietorship. This is Jill’s only source of income. After factoring in Jill’s deductions for self-employment taxes and the standard deduction, her taxable income is $73,000 (before application of the pass-through deduction). Contrary to our first example, here, Jill’s taxable income of $73,000 is less than her eligible business income of $100,000. Therefore, Jill’s 20% pass-through deduction will be applied to her $73,000 of taxable income. This results in a $14,600 (73,000 x 20% = $14,600) deduction.

Questions ♥ ? ? ?