Whether or not you should prepare your own income tax return is a question everyone, not only writers, should ask themselves each year - and now is a good time to start.
Why now? After all, the deadline for filing your tax return isn’t until April next year! Well, now is a good time because everyone needs to assess if their tax situation has changed, which it usually does, and by how much. We are in the final quarter of the calendar year so more than two thirds of the year has passed and the remaining months are an opportunity to adjust withholdings, retirement contributions and similar deductions if necessary. We’re also coming up on the time to renew or change our medical coverage, contributions to flexible spending accounts and more. All of this plays into our individual financial and tax profiles.
If you do prepare your income tax return yourself I strongly suggest using a software program to do so. The leaders are typically Turbo Tax and HR Block at Home. In the interest of disclosure, I use the latter and have for many years, so I’m comfortable with it and have confidence in the results but then I was also a Senior Tax Specialist for many years so my choice is based on many factors that may or may not be applicable to you. Regardless, you want to choose a reputable software program and one that has provisions to provide audit support or money-back guarantees should those options be necessary. There are plenty of sites that review and compare software programs each year and a Google search will yield a plethora of choices.
So, back to our assessment. Most people do not realize that their tax profile changes from year to year. The changes may be so minor that they go unnoticed - except to a trained professional - or they are so significant that your tax return mushrooms to 15 pages long from 3 or 4 pages the previous tax year.
For writers this can be especially true when we go from not declaring income and/or expenses on our tax return to doing just that, especially if writing is our first and only hobby or business. The impact extends from pushing us into another tax break or providing us with enough loses to do the reverse. From having to calculate depreciation on capital assets to paying additional Social Security and Medicare taxes.
Accurate recording keeping is a must, especially as your income tax return becomes more complicated, which is typically the result of becoming a published writer with income and/or expenses. If you’ve been keeping proper records all year long then this will lend itself to a straight forward and timely assessment of your personal and writing tax profile, which in turn will allow you to make adjustments as needed. Most people who earn money as an employee don’t realize that the income tax system is actually a quarterly system but once you start a business or hobby, such as writing, this will become quite evident.
If this sounds complicated, that’s because it can become quite complicated. So, in addition to your annual health checkup you need annual, if not quarterly, tax and financial checkups.
And you thought all you had to do was write!