Member of the National Association of Independent Writers and Editors

Taxes and the Freelance Writer or Editor

I’ll be discussing taxes for writers on Wednesday, February 2, 2011 with Janice Campbell in a teleclass for the National Association of Independent Writers and Editors

Congress was very busy in 2010 creating new tax laws. Are there any tax breaks for writers?

I’m happy to report some good news.

All workers and self-employed business owners, such as freelance writers, will get a 2% raise thanks to our Uncle Sam for 2011.

Congress decided to stimulate the economy by getting Americans to spend more money. They have done it before with checks in the mail, but this year they will do it by reducing the Social Security tax from 6.2% to 4.2%, but only for 2011.

I’ll discuss the new tax bills, how they may affect freelance writers, authors and publishers.

Tune in live on Wednesday, February 2, 2011 at 3:30 pm EST

Carol Topp, CPA

Every year I compose a letter to my tax clients that discusses recent changes in tax laws that may affect them. Here is my letter for 2011

Dear Tax Client,

Happy New Year! Another tax season is almost upon us!

I was re-reading prior tax letters to you, my clients and it seems that every letter started out with amazement at all the tax law changes and a warning that because Congress acted so late in the year, that the IRS may be delayed in being able to accept your tax return! This year is no different! As you probably know several bills were passed in 2010 affecting your taxes including:

• Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, 2010. The extension of the Bush tax cuts.
• Patient Protection and Affordable Care Act (PPACA) (ObamaCare) and it’s amendment the Health Care and Education Reconciliation Act of 2010
• The Hiring Incentives to Restore Employment (HIRE) and the Small Business Jobs Act of 2010 offering tax credits to small business owners and employers.

How these bills will affect most of you:

The Tax Relief bill came so late in December that the IRS may be unable to accept individual returns until February 14, 2011 for clients that itemize deductions. This news may come as a disappointment to you, especially if you are expecting a refund.

Mostly this bill is good news for many of you. The Bush tax cuts are extended such as the child tax credit, the educator $250 tax deduction, the deduction for state and local sales tax instead of state taxes, the American Opportunity credit for college tuition (extended through 2012). Some additional provisions include:

Energy-efficient improvements tax credit.Homeowners will be eligible for a credit, if they install insulation, energy-efficient windows or roofs or buy energy-efficient fans, water heaters and furnaces through 2011. Bring me your receipt and energy rating if you purchased insulation, doors, windows, fans, water heaters or furnaces in 2010.

Mortgage insurance premiums will be extended through 2011.

Donations from IRAs to charities for taxpayers over age 70 ½ has been extended through 2011.

A cut in Social Security tax from 6.2% to 4.2% just for 2011. This is like getting a 2% raise! Self employed taxpayers will also have a 2% reduction in self-employment taxes. You should see this tax reduction in your paychecks starting by January 31.

The Patient Protection bill is phased in over four years. Most of the provisions that have a tax impact to not begin until January 1, 2012. The provisions that may affect you now include:

Adoption credit. The maximum amount of the adoption credit is $13,170 for tax years starting in 2010 and the credit is fully refundable.

Health plan coverage of adult children. Adult children can be covered under an employer-provided accident or health plan until their 26^th birthday.

Over the counter drugs cannot be purchased using a flexible spending accounts, healthcare reimbursement arrangements or health savings accounts without a prescription. Both my daughter and I take daily over-the counter medicine that I pay from my Healthcare Savings Account. I asked my doctor write a prescription for the drugs. I keep this paper with my tax documents in case I am audited.

Landlords must provide 1099MISC forms to all service providers paid more that $600 in a calendar year.

This year I am asking all of my clients to read and sign a 1040_Engagement_Letter.  You can bring it along with you to our appointment or sign and mail it with your tax paperwork if you prefer. I cannot complete or deliver you tax return without this signed engagement letter form you.

If you would like a Client Organizer to assist you in collecting and organizing your tax information, please email me and I will email you a personalized organizer.

Please visit my website CarolToppCPA.com for a copy of the engagement letter, a tax return checklist and articles on taxes that you may find helpful.

I look forward to seeing you again,

Carol Topp, CPA
www.CarolToppCPA.com

The IRS announced January 20, 2011 that they will begin accepting paper and efile tax returns that have Schedule A itemized deductions beginning February 14, 2001.

Initially the IRS had announced a delay for returns with  itemized deduction of late February. I was fearing early March and had visions of getting all my clients finished in only 6 weeks! This is good news for me!

The IRS needed the extra time to update its systems to accommodate the tax law changes without disrupting other operations tied to the filing season. The delay followed the Dec. 17 enactment of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which extended a number of expiring provisions including the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction. (http://www.natptax.com)

Happy filing!

Carol Topp, CPA

I’ll be discussing taxes for writers on Monday January 17, 2011 with Felice Gerwitz on her online radio show:

Information In A Nutshell Radio Show

Congress was very busy in 2010 creating new tax laws. Are there any tax breaks for writers?

I’m happy to report some good news.

All workers and self-employed business owners, such as freelance writers, will get a 2% raise thanks to our Uncle Sam for 2011.

Congress decided to stimulate the economy by getting Americans to spend more money. They have done it before with checks in the mail, but this year they will do it by reducing the Social Security tax from 6.2% to 4.2%, but only for 2011.

I’ll discuss the new tax bills, how they may affect freelance writers, authors and publishers.

Tune in live on Monday, January 17 at 3:30 pm EST  at this link:

http://www.blogtalkradio.com/informationinanutshell

Hop on over to TaxesForWriters.com to receive that handout from the show. Look in the bottom right corner for my report: New Tax Laws in 2010. Anything for Writers?

Carol Topp, CPA

Please don’t tell my tax clients this…

The IRS extended the 2010 federal income tax filing deadline to Monday, April 18, 2011 because Emancipation Day, a District of Columbia holiday, falls on Friday, April 15. Taxpayers requesting an extension have until Oct. 17 to file their 2010 tax returns.

I want to be finished doing tax returns by Friday April 15 and have a nice restful weekend, so please don’t tell my tax clients that they have 3 more days!

Seriously, most of my clients get me their information in enough time. We all prefer to be finished with tax season as soon as possible!

Carol Topp, CPA

I remember when ObamaCare passed that they also passed an amendment to the IRS regulations requiring you to issue 1099s to anyone to whom you made a payment of more than $600, including suppliers. Do you know if we need to do that for this year or will it start later? (Or hopefully, be repealed)

Thanks for your help,
Melanie

Melanie,

Well, Congress tried twice to overturn this 1099MISC requirement that was a part of the Patient Protection and Affordability Act (ObamaCare), but neither attempt succeeded.

I learned the details about one of the bills to overturn the reporting requirement and it was more complicated than the original! It had different dollar thresholds based on the type of transaction and an exemption if a credit card was used (bu no mention of a debit card!). I was imagining some of my small business clients dealing with all of that in their QuickBooks programs! Ugh!!!

As of today (Dec 27, 2010), all businesses will be required to send 1099MISC forms to all suppliers including corporations for payments made beginning Jan 1, 2013.

That means that in 2012, you will need to collect W-9 forms (that request legal names and SSNs or EINs) from every business that you purchase more than $600 in goods or services. This means even corporations like a hotel chain or Office Depot!

You have all of 2011  to get your record keeping in place. Make sure that your accounting system is keeping track of payments issued to specific vendors, contractors, and other businesses. Track the name, address, and taxpayer identification number of the vendor. Make sure that your accounting system can separate payments made by credit or debit card from payments made by cash or check. QuickBooks can do all that if you or your bookkeeper enter in all the information as each bill is paid.

From http://www.accountingweb.com/blogs/scotth/exuberant-accountant/get-ready-onerous-new-1099-reporting-rules

Fortunately, the new Form 1099 reporting rules don’t cover payments made before 2012. So there’s still plenty of time to plan for what is likely to be a daunting task…use it wisely!

By the way, I wrote to each of my US senators about this onerous reporting requirement and explained that it was an unnecessary burden on small businesses. Both of my senators now say they oppose the reporting requirement and will work to overturn  (or amend) it.

Carol Topp, CPA