Blogger: Rachel Kent
Most authors have a home office space for writing–or at least a little area for a table and computer. The IRS allows for home-office deductions for small businesses, and I have learned that this year there’s a new way to do your at-home business deductions. An article in the December issue of The Costco Connection highlights this new deduction method.
(DISCLAIMER: I am not an accountant, and have no claim on being a tax authority. Please talk with your accountant about this so that you can make sure you are making the best tax decisions for you.)
Before this year, your office space deduction had to be based on the percentage of your home you used for an office, and there was a depreciation deduction for that part of the home. This depreciation will be recaptured (you have to pay it back) if you sell your home. The depreciation for each year isn’t too much, but if you write off your office for 30 years and then sell your house, that amount adds up! I learned about this depreciation recapture this year when we sold our house. We have to pay back the depreciation from my home office in our old house when we file our taxes. It’s not enough money to cause worry, but I was unaware that we were going to have to pay anything back when we sold.
The new, simplified method allows for a $5 per square foot deduction up to 300 square feet–and with this method there’s no depreciation deduction recapture to worry about. For small home offices, this might be a better method. The Costco article even mentioned that, with the simplified method, if you store business supplies in your garage you can include that square footage in your deduction. Storing copies of your books? Talk to your accountant about including that square footage, too.
If you’d like to find out more about this, check out www.irs.gov Publication 587, Business Use of Your Home.
I hope this is helpful to you as we all get to work on our 2013 taxes!
Is it hard for you to think of your writing as a small business? Why or why not?
Thank you, Rachel. Yes, it’s hard to think of writing as a small business, mostly because I’ve been a stay at home mom for so long now. It’s nice to think of doing what you love as a business … not many people can say that.
And I am down to almost two boxes of books in my closet now. I’ve regained my closet space!
ps. I’ll be away about two weeks … you all are an awesome group to learn from.
Have fun, Shelli!! 🙂
Thanks, Jeanne!
Excellent article. I’ll have to pass this information on to my hubby, who does our taxes.
I can’t say I struggle with seeing my writing as a small business, but I think it has more to do with how my hubby views it than me. If he would let me, I could probably get lost in the creative side all day; but because he’s got me tracking expenses and we talk about profit and loss, I’ve got more of a small business mindset.
Ahhhh, the IRS, the bigger cousin of Revenue Canada. But hey, at least we have Cadbury chocolate.
Cuz that’s a huge concession to doing one’s taxes in one of two official languages.
Yum,
Yes I would say the Cadbury chocolate makes up for many stresses and difficulties.
So Revenue Canada gives you Cadbury Chocolate in exchange for your taxes? I need to move to Canada. If the IRS sent a box of Sees Nuts & Chews after they received our check it would hurt a lot less. 😉
Oooh, good to know! Thanks, Rachel!
I have to confess, I love my office. It’s sunny and spacious. I have pictures on the walls of my family and things that make me happy. Even though I get tons of work done in there, it feels like a mini-retreat!
Thanks for posting this! I sent it to my husband for future reference!
Thanks Rachel! Great news. I am a CPA and didn’t know about this 😉 But I don’t do taxes, not even my own!
Thank you, Rachel, for passing on this information.
To answer your question, I now do think of my writing as a small business which includes not only the time spent writing, but also the time spent doing research on the business of writing, and the work to establish an online presence.
I hope you have a great weekend. 🙂
I did taxes for 18 years, and I’m still amazed at all the things writers don’t realize they can deduct legally. (I have a list I’ll send out.) I write down my income and expenses every day. At the end of the month I add up the totals for that month–and also year-to-date, so on the last day of December I have all my totals. As soon as I get our Social Security statements, I’m ready to do our taxes (although I don’t mail them out until April 15).
Donna, how can I find out what can and can not be deducted legally. I don’t feel like my accountant really knows, so I wouldn’t ask her. Is the information scattered through a bunch of IRA laws and documents? Or is there a concise place somewhere to find this. Thanks.
To read up on further qualifications you can go to http://www.irs.gov type in home office claims. and you will get a number of pamphlets.
However, I will say this, claiming the usage of your home as ‘office space’ is a risky claim. Forone if your writing desk happens to be inthe living room {like mine it} You cannot claim it. If you have a spare room that is closed off from all other living spaces, then you can claim it. However, you can claim, your computer, software, phone, website fees, internet bill, copyright registry fees, advertising fees, swag/marketing tool costs… just to name a few.
In your first few years you may find your expenses out weight your income, so you may want to roll over expenditures, or just drop them off; depending on how well it benefits you. And if your accountant doesn’t know these things, go find another accountant.
These are rudimentary and common claims in tax filing. So there is no excuse for an accountant to not be knowledged in them.
You can also set up an LLC (you can actually do this yourself with online forms) and take all expenses to the LLC. The LLC can even pay the homeowner (you) for the space you use to conduct business. Or, just write it off as a business deduction when you file your annual LLC returns.
Great advice. Something to look into for sure. Thanks, Michael.
Thanks so much for this heads up. I’ve been following you guys for about a year now, and it’s unbelievable the amount of helpful info I’ve gleaned from here. 🙂
Thanks! We are always looking for new topics so if you have questions please feel free to send a note to representation @ booksandsuch.com (remove spaces).
Thanks Rachel–I have a a new accountant this year and will ask her if she knows about this. I do consider myself a businesswoman, but I enjoy the creative side much more!
How interesting! Thank you for sharing this, Rachel! May I ask which Costco Connection magazine was it? I usually throw them away and hope I hadn’t thrown the one you’re talking about away.
It was the December issue.
Thank you, Rachel. I’m printing out your information to take to my accountant! She might know, but maybe not. It’s best to be prepared!
“Small is a relative term.”
For exampe: All small dogs think they are big dogs.
Thanks for sharing this Rachel. I do have an office now instead of a section of the basement.
I love the space, and my guys helped make it possible.
Have a safe and blessed weekend!
I write everywhere, even in my backyard.
But I have never duducted money for space used.
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