You know the framework for deductible expenses (Ordinary! Necessary! Reasonable in amount!) and you’ve got a handle on what to track for your writing business. Now we dive into the details: what exactly needs to be recorded and how.
What to Document
All deductible business expenses must be properly substantiated. You’ll need to keep records that include:
- Date of transaction
- Goods or services purchased
- Business purpose for the transaction
- Expense category.
- For business meals, the other people in attendance
- The division of business and personal expense, if the cost is dual purpose
Good news! An itemized receipt covers the first four bases, and it’s especially important for expenses that might be questionable. Web hosting charges for your website are a fairly self-evident business expense, but a charge at Target could be for anything—media mail envelopes or your kid’s favorite hash browns. Keep all your receipts and if you’re missing one, ask for it. Most businesses can send you a copy of your transaction within a reasonable timeframe.
Jot the rest of the information—the business purpose, people involved if more than you, and any personal portion—on the receipt at the time of the transaction. We’re writers. This part should come pretty naturally.
The expense category comes into play for your Schedule C. You have to divide your expenses among various predetermined buckets such as Advertising or Interest Expense. Accounting software (see Tools below) can automatically categorize costs for you, but if you do this manually and have questions about what goes where, check out this handy guide—Schedule C from A to Z—published by the National Association for the Self Employed.
Another invaluable supporting document is your calendar, or wherever you keep track of your events. Keep your physical calendar and/or export your digital calendar to save with the rest of your files for the year. This will help substantiate both your business miles and the time you spend on ancillary activities.
Taxes aside, at the end of the year it’s always a good practice to review your calendar as you think about your goals for the upcoming year and ask some critical questions.
Where did you spend your time away from the page? What became of those events? Did they broaden your network or help you reach readers? Where would it most serve your career to spend your time this year?
All of this reflection will naturally feed into and shape your business plan for the new year.
When to recognize?
Writers always operate on a cash basis. Expenses are recognized when they are paid. If an expense is charged to a credit card, it’s recognized when charged, not when the card is paid off.
Using some basic tools can significantly reduce the time and stress it takes to organize your writing business.
Whether you’re just starting out or mid-career, your first and most important tool for tracking expenses is an account dedicated solely to your business. Open either a credit card or a business checking account and run every expense through that account. Keeping all your business activity in one location will save you from sifting through thousands of transactions at the end of the year, hunting for deductions. And it makes it simple to download your transactions and sort them into your Schedule C buckets.
Many banks offer free checking accounts and a credit card is always free when you pay it off every month, so this is a zero cost solution to making your business life easier.
A good record keeping system will help immensely, not only for taxes but to analyze your revenue and expenses and help you become more strategic about your business. The below options are by no means exhaustive, but represent some of the most popular offerings geared toward small businesses. All three of these include mobile apps and online desktop access, receipt scanning, and seamless bank and credit card transaction imports.
QuickBooks Self Employed includes a built in mileage tracker and estimated tax payment calculator/reminder. The pricier version ($17/month) includes automatic transfer of your business results to TurboTax and a free state and federal filing.
Wave. One of Wave’s biggest draws is that the basic accounting application is totally free.
Xero. This one starts at $9/month, but with a limited amount of transactions.
I personally use the QB application, because it’s built specifically for self employed individuals and is easy to use. (Just my opinion. I don’t have any endorsement revenue to code yet.) The program automatically loads the transactions from my business checking account, and all I have to do is categorize them and add my notes about the business purpose.
I’m not going to go completely Marie Kondo and have you organize documents into Pending, Important, and Miscellaneous—mostly because every writer I know has a complex and unique relationship with paper—but it’s critical to your business that you are the one in charge of the relationship. Not the paper.
Find a space and a system that works for your life. You may want to keep supply paper like envelopes, stationary, folders, and printer paper more closely at hand while securing long term documents in locked cabinets, safes, or scanning them to a secured backup drive. The more frequently used, the more accessible.
In-baskets are a great way to keep your paper stress low. You may not have time to deal with every expense when it happens, so toss the receipts into your in-basket and get to them when you can.
No matter what system you choose, plan on keeping your tax returns and supporting documentation for seven years. There are no set rules for other business documents such as publishing contracts or agency agreements, but I recommend keeping these either permanently (so does ⬇️ Neil Gaiman ⬇️)or at least seven years after any associated liability or obligations have expired.
Just a note to creative types: Never EVER throw contracts out. Keep them and make them findable. In the last 2 years I've been saved twice by having found copies of contracts (from 91 & 97) that Other Parties had lost. Lawyers stopped obfuscating/prevaricating and came into line.
— Neil Gaiman (@neilhimself) January 14, 2019
Create Tracking Habits
The best way to stay on top of your expenses is to make tracking them a habit. Here are a few ideas to jumpstart or refine your record-keeping.
- Figure out the time and place. Tracking your expenses doesn’t require a lot of higher level brainpower, so find some space in your life where you have time, but less creative energy. A space, in short, that you won’t be sacrificing productive writing time. If you need help to identify these spaces, follow your social media habits and try to carve out a window from there.
- Make triggers. If you use an in-basket for receipts, keep it small, so that it regularly fills up and cues you to sort through your transactions. Don’t be afraid of fun triggers, either. Give your record keeping a signature drink—complicated hipster coffee or Pinot Noir—or play The Beatles’ Taxman to kick things off. Whatever you choose as your trigger, be consistent and try to do it every time you sit down to reconcile. Triggers will get you in the mood and increase your efficiency.
- Set alarms or appointments. The biggest source of lost deductions is forgetful business owners, so find an interval that works for your business and memory. If you only incur infrequent expenses, maybe a monthly calendar appointment is sufficient to update your records. If you’re on a twenty city book tour, though, you should probably take a few minutes every night in the hotel to log your receipts. Sit down to record your expenses at least quarterly, to support your estimated tax payments.
- Don’t move to other writing tasks until you’re up to date. This is an easy habit to ignore or break, but so important. Finishing the task every time will keep you in control of the records, and give you peace of mind for your primary job: writing!
There you have it. Nothing complex or overwhelming. Nothing that will get in the way of your content deadlines. Grab the tools you need, adopt a system that works for you, and start tracking like a boss.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting services. Presentation of the material does not create a tax-professional-client relationship. The material is provided on an “as is” basis and is accurate and true to the best of my knowledge, but no representation or warranties of any kind are given about the material, and there may be errors, inaccuracies or omissions.