Most years, Marie Myung-Ok Lee, the author of six novels, including The Evening Hero (Simon & Schuster, 2022), earns a fair bit of money writing for publications like the Atlantic and Salon and making appearances at various colleges and universities. But in 2020, the first year of the pandemic, the cancellation of in-person events across the United States caused a steep dip in her freelance income.
Not every writer can find the tax accountant of their dreams, but most working writers can save money by learning how to craft a narrative of their creative lives for the tax authorities.
As a freelance writer, Lee knew this was obviously a problem. As a taxpayer, however, she realized it presented her something of an opportunity, because it meant that when it came time to tot up her gains and losses for the IRS, using a form called Schedule C, she was able to claim deductions on her tax bill.
“Irrespective of how much income I’m coming in with, I still do the Schedule C and take all the deductions,” she says. “Once you’ve established over a number of consecutive years that your writing is a business and not a hobby, it’s allowable to occasionally operate at a loss, just like any other business.”
Lee, who is the writer-in-residence at Columbia University’s Center for the Study of Ethnicity and Race, says she learned the tricks of managing the taxes for her creative life from a master, an IRS enrolled tax agent named Curtis Arluck who handled her taxes for nearly thirty years before he retired in 2018. Among other things, she says, Arluck taught her to “craft a narrative for being a writer” that enabled her to deduct expenses for her writing life as she began publishing regularly.
“I would say that your accountant is as important as your agent,” Lee says.
Not every writer can find the tax accountant of their dreams, but most working writers can save money by learning how to craft a narrative of their creative lives for the tax authorities.
If you earn only a few small freelance payments and you don’t want to bother with claiming expenses, you can list your freelance payments on your tax return as “other income,” the same category that applies to lottery winnings and jury duty payments. That’s simple and easy, but you could be missing out on important tax benefits due to you as a freelance writer.
Under the tax code, a freelancer is, in effect, running a small business and is entitled to deduct business expenses using a supplementary tax form called a Schedule C. If you earn more from your writing than you spend in a given year, you pay self-employment taxes on your “profit.” But if you spend more than you take in, you can use this “loss” to bring down your taxes on your other income.
To take full advantage of these tax rules, however, you must track your income and work-related expenditures, no matter how small. A simple Excel spreadsheet can work for this, though Christianne Kapps, a tax preparer with Philadelphia Tax Prep for Artists, suggests opening a separate bank account for your freelance work to create an easy-to-access electronic record of all your business transactions. “It may be a pain because you get the check from the literary journal and you have to transfer it to yourself to pay the mortgage or whatever,” she says. “But it is a good practice because at the end of the year the bank statement is a list of all your business transactions.”
In some cases this accounting is done for you when get paid for freelance work. When you sell a story or place a poem, often the publication will ask you to fill out a W-9 tax form, which records your Social Security number and allows the IRS to track your payments. At the end of the year, if you earned more than $600 from that publication, you’ll receive a Form 1099 detailing your total payment from that source.
Handling these forms is relatively straightforward: If you’re asked to complete a W-9, you have to fill it out if you want to get paid, and if you receive a Form 1099, you must report it with your tax return because that’s income the IRS already knows about.
But what if the payment is less than $600 and you never filled out a W-9? Can you just “forget” to report that payment to the IRS?
Tax preparers say that’s a bad idea. “First of all, it’s the law,” says Kapps. “If you were audited by the IRS and you have all these deposits in your bank account and nothing to show for it, you’ll get in trouble. But besides that, your tax return, as a self-employed person, is your only proof of income, so if you try to buy a house or buy a car or get a loan, they’re going to be looking to your proof of income, and the tax return is it.”
Rather than commit tax fraud by hiding freelance income, tax preparers say, writers should look for legitimate expenses they can claim to offset all or part of their literary earnings. “Take that energy and motivation and use it to play the tax game as opposed to the tax evasion game,” says Rus Garofalo, who runs Brass Taxes, which specializes in tax assistance for freelancers and artists.
Under U.S. tax law, freelance writers can claim all “ordinary and necessary” expenses related to their literary careers, including equipment like laptops and printers, work-related travel, supplies like paper and Microsoft subscriptions, as well as reading material like books and literary journals. You can also write off the costs of your work space, so long as you use it for only writing. If you use the spare room of your home, or even just a desk in the corner of the dining room, as a writing space, you can deduct a portion of your housing costs as a business expense. If the spare room takes up one-sixth of the total square footage of your home, you can deduct one-sixth of your annual rent, utilities, and mortgage interest.
This doesn’t work, though, if the space is also used for other household activities, Kapps says. “If you’re sitting at the dining room table all day, that’s your work space, but it’s also a dining room. You can’t claim the whole dining room; you have to isolate [a part of it], but they really want to see a dedicated work space. I actually know somebody whose house they visited to double-check.”
Writers should keep in mind, though, that these kinds of business expenses, especially work space deductions, are well-known points of curiosity for IRS auditors. And if your expenses too often outpace your earnings, you risk having your writing deemed a hobby rather than a legitimate business and lose the ability to deduct your portion of your business expenses that exceeds related business income.
“Be wary of showing a negative number on your return,” says Basil Agrocostea, owner of Agro Accounting CPA, which specializes in working with artists and freelance creative workers. “That’s going to trigger a refund, and the IRS is in the business of collecting money, not giving your money back. When you go to a store and return a T-shirt, they’re going to ask you, ‘Why are you returning it?’ It’s the same here. They’re going to ask you that. A negative number means you’re trying to turn the system upside down. You want money and not to give it.”
Under the tax code, to be eligible for deductions a business must turn a profit in at least three out of every five years, though tax professionals are quick to note that what the IRS really wants to see is that you’re genuinely trying to turn a profit. “What they’re going to want to do is look at your output and see if you’re acting in the way that a business would act,” says Kapps. “Are you promoting yourself? Are you actually selling product, which, in your case, would be publishing?”
Ultimately, though, the IRS views freelance work through a business lens. A writer who rarely publishes, and even more rarely gets paid for it, is more likely to be deemed a hobbyist who isn’t eligible to claim business expenses.
But if you regularly earn income from your writing, you can manage the expense declarations to avoid falling afoul of the three-years-out-of-five rule. In years when your costs are low, you can declare just enough expenses that you show a “profit” at the end of the year. Then in a year when your expenses are especially high—you hired a publicist, say, or financed your own book tour—you can declare all your expenses and take the loss as a tax benefit.
“Don’t make me show a loss in a year when you’ve got a $600 loss,” says Agrocostea. “Make me show a loss in a year that counts. Give me $3,000. Give me more meat on the bone.”
Writers need to consider the tax implications for their earnings as well. If you receive a book advance or a major award, Kapps says, try to get the payout spread over more than one year to avoid jumping a tax bracket and paying a higher rate. You can also look for other ways to minimize the tax hit, such as investing part of the windfall in a tax-exempt retirement account or choosing that year to make major business expenditures.
“My sadness is when I see a person get a thing like this but then they have to pay it all out in taxes because they have no expenses against it,” she says. “That’s not the purpose of a book advance, to give it all to the IRS. The purpose of it is to promote you and your work and to keep you working.”
Of course, managing all this on your own can be exhausting. The Internal Revenue Service website (irs.gov) does a surprisingly decent job of explaining the rules in plain English, and writers with time on their hands and a knack for math and complexity can handle their own taxes. But even with the help of tax prep software like TurboTax, filing taxes is a time-consuming, frustrating process that can leave nonexperts wondering if they’re getting all the tax benefits due to them.
“Emotionally, willpower-wise, you’re exhausted, and you don’t have the knowledge to know, ‘Is going through all this going to save me $40 or $4,000?’” says Garofalo. “‘What’s the value of my time right now?’ It devolves to what is your blood sugar like or what are your plans that evening, and it’s just such a terrible environment to make good decisions, especially long-term financial decisions.”
If you decide to work with a tax professional, start by asking writer friends for recommendations. Ideally you’ll want to find a tax preparer who works with freelancers and who you feel personally comfortable with. Price transparency is also key. Depending on the complexity of the return and the preparer’s rates, a tax filing can cost anywhere from a few hundred dollars to thousands of dollars, so be sure to get a firm quote from a tax preparer who has taken the time to talk with you and assess your tax situation.
A good accountant can sometimes find tax savings that outweigh their fee, but watch out for overly aggressive professionals promising to apply what Agrocostea calls a “magic eraser” to your tax liability. “An accountant who puts more expenses on your return and says it’s okay without proof, he’s taking a risk for you, but when the crap hits the fan, he won’t face liability unless he has a history of negligence on plenty of returns with the IRS,” he says. “The IRS is going to say you did wrong.”
The most important thing is not to throw up your hands in despair and fail to take the deductions you deserve, or worse, fail to file a return at all. If you face a major tax hit and you don’t have the money, you only make things worse by not filing your taxes, tax professionals say. If you can’t pay what you owe, you can file for an extension, and in certain cases you can work out a payment plan with the IRS. And, with help from the right accountant, you may find that you don’t owe as much as you thought.
“People sometimes are so afraid they’re going to owe $10,000 in taxes that they don’t do their tax return or they put it off,” Kapps says. “Often it turns out that you don’t owe that much, so you shouldn’t have worried about it so much, but now that you haven’t filed your taxes for three years, you do owe a lot because there’s interest and penalties.”
“Don’t let your fear of the thing paralyze you into not doing the returns,” she says. “Do the returns. Even if you can’t pay it all at once, file the taxes.”
Michael Bourne is a contributing editor of Poets & Writers Magazine. His debut novel, Blithedale Canyon, was published in June by Regal House Publishing.
