Writers who are beginning to publish and win and/or place in contests may be earning fees. The moment this starts to happen for you, the revenue from your articles, short stories, and books creates tax implications. It also marks the moment when writers have to start keeping good records of their income and their expenses incurred from making that income. Writers also need to be able to at least prove that they have a reasonable expectation of income in the future from the expenses incurred ahead of time (e.g. a signed article or book contract).
My colleague, Eileen, is an accountant and writer and offers this advice to writers:
by Eileen Reppenhagen, CGA
Are you ready for this scrutiny? If not, what can you do to be ready for ‘indirect verification’ audit procedures regarding deposits?
- List your accounts, all of them, whose name is on title, and why the account is shared.
- Create a folder to store each account’s statements, with the most current month on top, one file per account per year.
- Document the reasons for all deposits related to your writing income. (Another reason for keeping track of all your submissions to periodicals and contests!)
- Add up all the deposits. Reduce the deposits by transfers in from other accounts, and compare the total to the total of gross income and deposits from sales (plus taxes) charged to customers reported on your tax return.
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Disclaimer: Please do NOT rely on or use the information in this article as a basis for a course of action without obtaining appropriate professional advice because the facts of your specific situation must be interpreted in light of the rules found in the Income Tax or Excise Tax Act. E.R.
If you have a personal tax question, write it down, keep it short, and submit it to the comments. Address your question to Dear TaxDetective. Eileen has kindly agreed to answer your questions in a Q&A column for writers in March. This is your opportunity to learn more about tax, and who knows, you may find a way to pay less tax!