We went to H&R Block to have our taxes done yesterday, and it was shocking, stunning, jaw-droppingly good news. The amount we’re getting back is nothing short of a windfall. Apparently, between the interest we’re paying on our house, and the substantial loss that we took on our mutual fund last year (mutual fund tanked so badly they closed it out), we way over-withheld on our taxes.
To celebrate, Matthew and I ordered sushi delivery and discussed what we’re going to do with the money. The overwhelming consensus was that we’re going to put most of it into savings, but we’re also going to spend a little of it on ourselves as “fun” money to let us have those little things that we wanted to buy but denied ourselves because we’ve been trying to be frugal. The rest we’re going to put into the house. There’s a few things around here that’ve always been not-quite-right that need a professional to look at. And we need to hire a lawn guy to mow and fix up our landscape area. We suck at it, and I think our neighbors are beginning to hate us.
I also paid taxes again on my writing. Last year was looking rather chancy on that part until Phobos, but with that single sale, I got nudged into owing on schedule C. I’m officially a self-employed, professional writer in the eyes of the IRS, and definitely not a hobbyist. Hurray!
Congratulations on owing the IRS money! (That sure sounded funny- I meant congratulations on being an official professional paid author!)
Thanks! And it is indeed a weird feeling to be pleased about having to owe taxes. But . . . but . . . warm, glowy sense of accomplishment!
So like, what’s the tax info for writers? Not that I’ll be a paid writer and have to worry about it anytime soon…
From John Savage (writer’s lawyer) at the Speculations Rumor Mill:
“The good news is that you only need to show a profit in 2 out of 5 years to avoid being treated as a hobbyist (i.e., no deducations) rather than a business.”
Under schedule C:
“Full-time writers should use code 711510 (“Independent artists, writers, and performers”), but if and only if all of your activities are writing. This is not a recommended category, because you’ll be lumped in with “artists” and “performers”—two very-high-audit professions.
“Writers who also provide publishing services, such as proofreading, slush-reading, editing, etc. should use code 511000 (“Publishing industries”). Note that you need not show a profit in each area to be doing so, although a critique group is probably not enough. However, if you guest-edit an issue of a magazine or webzine to help your writing career, this is probably a good option.
“Lastly, if your writing includes nonfiction material on specific topics in which you have credentials as an expert, you can choose code 541990 (“All other professional, scientific, and technical services”), especially if you run a “help desk” or do other consulting in that area. This is an amalgamation of two previous occupational areas, both of which were “low audit risk.”
What you can deduct:
“Everything you can. Get yourself a copy of Schedule C, Schedule SE, and the instruction booklets for both. Then run to the library and check out the Ernst & Young Tax Guide (the big blue book)–accept no substitutes.
“As general examples, subscriptions to purely professional magazines (such as Speculations), research sources, office supplies, sample copies, marketing guides, etc. are deductible. Subscriptions to “dual purpose” magazines and purchases of books that you might have gotten for “pleasure reading” are dicier. You must obtain advice from a competent CPA or attorney on this in your area–the aggressiveness of the different IRS field offices varies tremendously.
“Lastly, don’t forget self-employment tax (that Schedule SE)–it’s a nasty one. And do make quarterly payments, although you only have to make them based on your net (not your gross).”
That’s it in a nutshell.
Congrats!!
A double edged sword when the IRS considers you a professional…
Re: Congrats!!
True, but one I’m okay with getting a few nicks from
.
Yeah. Paying quarterly taxes is not fun. I’ve been doing it for a year now. Bleah.
We’re also getting money back from the IRS. Unfortunately, we’re only seeing about half what we’re getting back. See, places like Jackson Hewitt charge more based on how complex your tax return is. George is a student, with loans and tuition; I’m a freelancer, who pays quarterly taxes, and had over $2K in business deductions…
Our tax return was incredibly complex. (That’s why I didn’t do it myself in the first place.) And when all was said and done, it cost us over $250. 🙁
Next year, complex or not, I’m going to do it myself, I think.
This is why I love the fact my wife’s best friend (who was the maid of honor at our wedding) graduated last year with an accounting degree.
“Next year, complex or not, I’m going to do it myself, I think.“
Matthew said that too. Our cost to have our taxes done wasn’t as high as yours, but it was still a noticeable chunk o’cash. But this year we re-financed our house, still had IL state taxes to contend with (due to a mix-up of withholding at my day job), and had our mutual funds go belly-up, so decided the safest thing to do was have a professional deal with it again this year. But Matthew thinks he can sort through it next year as long as I keep my Schedule C stuff straight for him–fortunately that’s one of the bits that I really understand inside and out because of the obsessive-compulsive writing logs I keep. I’m a little leery. The IRS scares me.
You thinking of getting one of those tax software setups or going it alone with pencil and reams of official forms?
Definitely going with software. I do not in any way, shape, or form trust myself to get it right without being guided somewhat through the process.
TurboTax Small Business is supposed to have options for quarterlies, business deductions, and so forth. It’s something like $30-$60, which is still far better than $260 at Jackson Hewitt. Even I can do that much math. 😉