Before you tear out your hair (or mine), read the article below from Georganna Hancock. She'll shed some light on the topic. I threw in a few more sites to check for information, in the Website Spotlight. 

Since I'm an accountant as part of my day job, I deal with taxes a lot. Businesses and freelancers have to keep taxes in mind all year long. One of my biggest pet peeves is the statement "You can take it off your taxes." 

I hear this a lot. People seem to think that being able to deduct expenses means it's okay to spend money freely. What they don't seem to grasp is that being tax deductible does NOT mean the item is free! You can deduct it, but first YOU HAVE TO PAY FOR IT. You have to take the money out of your wallet and hand it over.  

And showing it as an expense on your tax return still doesn't make it free. Say you buy a $100 software program for your writing. Yes, this is deductible. You can record a $100 expense. That reduces your income by $100. Which will reduce your taxes by $25-30, if you had a profit for the year. You are still out $70-75 for the software. Was it worth it? 

Okay, okay, I'll calm down. We have a lot of entertainment coming up this month, to take your mind off your tax return. Linda gives us an update on Jordan Dane's Launch Party. There are five Sundays in March, so you get FIVE guest chats!  

Last but far from least, Glenn Walker gives us the first review on Jordan's book, "No One Heard Her Scream". This sounds really good! And it will be followed up quickly with her next two releases in the series. Keep your eye on this lady. 

It is not necessary to get a tax number, form a corporation or come up with a business name in order to operate a freelance writing business.  This includes writing books.  You don't need an attorney.  If you're doing it alone, as most of us are, your business form is a sole proprietorship.  You will have to use Schedule C, Profit or Loss From Business, with your Form 1040 tax return.  Sorry, you can't use the short form if you run a small business unless you have a high amount of deductibles.  "If that amount does not exceed $5,000, and if your business did not have a net loss, you should be able to use the C-EZ instead of Schedule C," says the IRS. 

If one or more other persons are involved, say you have a co-author or a co-writer arrangement, your business is a partnership.  The IRS says, "Partnerships file Form 1065, U.S. Partnership Return of Income, to report income and expenses.  The partnership passes the information to the individual partners on Schedule K-1, Form 1065.  The partners report the information and pay any taxes due on Form 1040.  Because partners are not employees of the partnership, no withholding is taken out of their distributions ...." 

See IRS Publication 334, Tax Guide for Small Business, available from the government's tax website at http://www.irs.gov/pub/irs-pdf/p334.pdf for details about filing the Schedule C and Schedule C-EZ.  You can also download copies of tax forms, schedules and instructions. 

It is vitally important that you keep accurate records for everything about your business.  A business journal can be handy, as well as setting up a filing system for every piece of paper and electronic files associated with your freelancing.  In fact, I'd go so far as to say that, in the beginning, you should keep receipts from all purchases, at least until you decide what items you will count as deductible writing expenses for the tax year.  Documenting your activities will come in handy when you prepare your tax forms and especially if the IRS questions any deductions. 

Keeping good, verifiable records is important for the way in which the IRS defines a business.  If you can't prove that you are trying to make money, a string of losses could put your activities into the "hobby" category.  Expenses and losses for hobbies are not deductible.  The IRS says, "An activity is usually considered a business if it makes a profit during at least three of the last five tax years, including the current year."  This is a very important distinction.  You can show a loss for the first three years of your freelance career.  Any time you hit the fourth year and try to file the Schedule C or Form 1065, you'd better show a gain or risk an audit and having your business declared a hobby. 

What can you do to preserve this 3:2 ratio of losses to gains?  You can't manufacture income, but nothing prevents you from not claiming deductions and generating a fiscal loss in a critical year.  Yes, it's perfectly acceptable and not even a tax loophole.  No one can force you to consider an expense as a business deduction.  That is entirely in your control.  Do you begin to see the value of good recordkeeping?  It is also important for estimated taxes. 

This aspect of freelancing and the IRS involves payments you receive from which the taxes are not withheld.  Figuring out whether or not you will need to pay the four-times-a-year annoyance is somewhat complicated, but generally you won't qualify if you expect to owe less than $1,000 in taxes, AND you expect your withholding and credits to be more than 90% of what you will owe or 100% of the previous year's taxes.  Clear as mud?  Consult Publication 505, Tax Withholding and Estimated Tax at: http://www.irs.gov/publications/p505/index.html. 

This article was based on information available in 2007. 

© 2008 Georganna Hancock 

Georganna maintains A Writer's Edge and Hancock Websites.  She enjoys helping others by editing, consulting on books and creating websites for writers.  Contact her by email:  Writers.Edge[AT]gmail.com or Geo[AT]HancockWebsites.com

For those who are going past the point of freelancing and into a full-fledged business, there is a wealth of information and education through the Small Business Administration (SBA).

TWC founder Glenn Walker offers up the first of our reviews for the "launch" of debut author Jordan Dane's NO ONE HEARD HER SCREAM. Glenn will also be closing up our Virtual Tour with the final interview--before the "Launch P-A-R-T-Y!" 

NO ONE HEARD HER SCREAM

by Jordan Dane

Avon Harper Collins

ISBN: 9780061252785

When her teenaged sister disappears and is assumed dead, homicide detective Becca Montgomery is obsessed with finding out what happened.  When given a different case to divert her attention she falls into the arms of a charming mob enforcer and soon they find both cases may be related.  

Jordan Dane is a mistress of the metaphor and a sorceress of the simile.  She uses words as a weapon and the pace never stops.  Her characters and their personalities seem as if drawn by a modern day Chandler.  Her sense of place is delightful as the flavor of San Antonio comes alive within the pages.  This romantic suspenser is a must-read for the genre.   

By Glenn Walker    http://www.monsura.blogspot.com    and  http://www.comicwidows.com

Audrey Shaffer      Linda Hutchinson      Renee Barnes    Kim Richards