If you are one of the millions of people who worked as freelance writers during 2019, you should start thinking about the forthcoming tax season with respect for Tax Deductions for Bloggers and Writers. With less than two months until the fiscal year ends, you must begin making some basic preparations now. The first two things that should be on your agenda include calculating a range of your overall income and determining your deductions. Since the income side will be fairly easy to estimate, given that all you have to do is add up everything that you earned, you should dedicate most of your time to the expense side. Before getting into the details, however, you must learn what the basic definition of a tax deduction is and how it affects your underlying liability to the Internal Revenue Service, or the IRS.
Tax Deductions Explained
Tax deductions for bloggers and writers are amounts that you get to subtract from your overall earnings on the annual return. It can be any expense that was ordinary and necessary for your writing or blogging venture. Keep in mind, however, that the IRS demands that these costs be reasonable in order to be claimed against income. The issue that arises from such a loosely defined term is the fact that it brings a lot of objectivity that you may get penalized for. So, your ability to recognize and justify reasonable costs is going to be of the essence here. Out of all the potential tax deductions for bloggers and writers, which are counted in dozens, you should try to focus on the following few:
- Home office
- Utilities and miscellaneous costs
- Writing Software
- Self-Employment Tax (one-half)
These are generally going to be the largest deductions that a freelance writer can claim, and the IRS has a long history of accepting them without any additional queries. In translation, taking advantage of these few line items has the highest risk-to-benefit ratio as the likelihood of an audit is extremely small and potential savings are enormous.
The home office deduction is an expense that you can claim if you did most of your freelance writing or blogging at your primary residence. The reason why is that the IRS wants to extend you the same courtesy that they extend to businesses who get to deduct their business-related rent payments. Of course, your overall deduction will be limited to the size of the “office” that you designated as your main writing space. To understand how to go about the process of calculating the deduction, consider the following steps.
Step I: Calculate the overall size of your entire home and the size of the space where you were writing. If you had a specific room, which would be highly advised when possible, the math will be a lot easier to do.
Step II: Divide the office space by the overall size of the home. If you have a 1,000-square-foot house and your writing area was approximately 150 square feet in size, you will get 15% as the result.
Step III: Summarize all of your rent or mortgage payments for the year. This is also a great time to calculate your annual utility payments. As a general rule of thumb, only calculate the sum of payments for the months when you worked as a freelance writer or blogger.
Step IV: Multiply the total by the aforementioned percentage. So, if you found the total rent or mortgage payment to be $20,000 for the year, you will get to take $3,000, which is 15%, out of your freelance income.
Step V: Fill out Form 8829 that is specifically designed to report home office deductions to the IRS. Once you finish, do the same for your utilities, property taxes, and any other costs related to your working space.
Business Utilities and Assets
Unlike home-based utilities, your business utilities are going to be smaller assets that were mandatory for your writing or blogging. These include things like your phone, internet, computer, and any other equipment. As with the previous deduction, remember to make allocations if any of these expenses were dedicated to both personal and for-profit endeavors. For example, if you spent $1,000 on your home wifi and used it to watch movies and do non-work-related things for 40% of the time, you can only deduct 60% of that $1,000.
While the IRS eliminated a large chunk of meal and entertainment expenses that corporations were entitled to when they release the new tax law in 2017, sole proprietors were not affected by these changes. In translation, if you buy a meal during the regular course of business, you can claim it as an expense. Some of the mandatory steps that you have to keep in mind here include the following:
Step I: Save all of your meal receipts throughout the year while also keeping track of your projects. This means that you should be able to showcase what you were writing or blogging at a time that you purchased a meal. If you need reliable software that will help you save all of your receipts, consider Taxbot’s tracking app for Apple or Android. Doing so will make your expense tracking a lot easier as the app simplifies the process immensely.
Step II: Avoid over-expensing your meals. While the IRS allows meals, you should be wary of taking unfair advantage of this rule. If you do, there is a good chance that you will get audited and asked to show evidence, which includes explanations, of your extravagant meal costs.
One of the most commonly overlooked deductions amongst freelance writers or bloggers is all the software that you were subscribed to or purchases. For example, if you are paying $20 per month to have premium access to Grammarly, you have the right to deduct $240 for that add-on for the year. The reason why is that it is directly related to the income-generating activity here. This also includes things like buying the rights to use non-copyrighted photos in your articles, Adobe Flash plug-ins, annual domain rights for your website’s name, cloud subscriptions to save your articles or blog posts, and similar. Every single one of these line items is something that you would most likely not need if you were not a writer.
Since the vast majority of writers work online nowadays, there is a good chance that you will run into some marketing expenses every now and then. This could include everything from your Facebook-related advertisements to simple promoted posts on Google, Youtube, or any other social media websites. Even if those ads do not result in any income, which means that they were unsuccessful, you still get to deduct them. Just because something did not directly translate to an inflow of cash does not mean that the IRS will forbid you from using it as a tax deduction. The reason why is that, once again, this is not something that you would need to pay for was it not for your writing or blogging venture.
Finally, do not forget to deduct smaller charges that were related to your supplies. Unlike equipment, utilities, and software subscriptions, these will generally be a lot smaller. Nonetheless, when you combine all of your supply purchases for the entire year, there is a good chance that you will accumulate a hefty deduction. A few steps for ensuring that you go about the process correctly include:
Step I: Make a list of everything that you purchase as a supply for your writing or blogging venture. This will include anything from actual pens and pencils to laptop chargers or flash drives.
Step II: Separate the ones that are reoccurring expenditures, the likes of which include note pads, pens, pencils, and similar. After you make the split, you will have some non-regular purchases that you may want to reclassify as equipment or asset costs. The charger that was mentioned above would be a great example. For instance, a MacBook charger could cost you $100, which probably amounts to countless notepads and pencils. Due to such a big difference, there is more than enough reason to put it in the long-term asset group.
Step III: Try to retrieve your receipts for the supply purchases. If you have not saved them, try to find your bank statements that showcase the exact cash outflows for each supply transaction.
Half of Your Self-Employment Tax
In the end, there is one deduction that you should never forget. Fortunately, if you decide to use any tax preparation software, this deduction will be automatically accounted for. If not, you have to remember to take it as it will probably be in the same range as the home office when it comes to your savings.
Since you work as a freelance writer or blogger, your sole proprietorship will have to pay the self-employment tax. Currently, it amounts to 15.3% of your income, not including the federal tax, as you are paying for both the employee and the employer half of the Federal Insurance Contributions Act, or FICA. Luckily, come tax season, you get to take off one-half here since your employer would get to the same. Thus, if you made $50,000 in net profit and end up owing $7,650 in self-employment tax, you can take off $3,825 without any restrictions. Although this is technically considered a “for AGI” deduction, which means that it comes before the adjusted gross income line, it is still a common expense that you should never overlook. The steps to get to the actual dollar figure are below.
Step I: Calculate your self-employment tax by multiplying your self-employment-eligible amount of profit, which is 92.35% of the total figure, by the previously mentioned 15.3%.
Step II: Divide the number that you find through the previous calculation by two.
Step III: Subtract half of the self-employment tax from your gross income before you get into any of the other expenditures.
Stay Within Expectations
The most important advice that you should always remember is to stay within reasonable expectations. The IRS tracks every single profession in the United States and constantly update their data to showcase current earning patterns and trends. So, if millions of other freelance bloggers are who bringing in around $40,000 per year, hypothetically, have around $10,000 in expenses, you should not have $30,000 worth of deductions. Such a major outlier will almost guarantee that some of your expense claims either get declined or audited. For additional help on finding tax deductions for bloggers and writers, consider reaching out to a tax professional who can prepare the return for you. Interestingly enough, the money that you pay to your accountant will also be deductible! Get a free consultation, or get pricing on our virtual tax prep services, now.