Most of us have the luxury of writing full time. But if you are taking your writing seriously, selling the occasional article or devotional, and/or are under contract/have published a book, then you'll need to consider various options.
When I first started publishing devotionals and articles, I didn't get paid enough for the IRS to care about that piddly income. But when I started proofreading for Barbour (ahem . . . ten years ago), my hubby encouraged me to find a name for my "business." I laughed. Right! So I came up with the name. Still, added to my income as a Christian school teacher, it was okay for a second income.
Then during the 2004-2005 school year, the Lord started nudging me toward resigning from my teaching position and going full-time, editing and writing. Totally freelance. Scary!! Then I really had to get serious about setting up a business.
The first thing I had to decide was what type of business would I be (for tax purposes) and were there options I might want to pursue later. With our daughter's help—she's a tax accountant—we decided that I would stay as I was—sole proprietorship, using my social security number as my Federal tax ID number. I went to the bank with that info and records of past years filing a Schedule C with our joint income tax form, and opened a business account. I also had to have this information for setting up our medical insurance as a Business of One group.
Then came the serious job of keeping up-to-date records of income and expenses, including mileage on the car every time I went out on writing/editing related business. For a couple of years, I kept separate files for income (invoices) and expenses (receipts). Kathy gave me a list of what I can legitimately claim, and I threw all those receipts into a folder. Which my husband then waded through each year when he filled out the Schedule C.
After a couple of years of that, he set up a few Xcel templates for me so I could keep track of things all year long. First, he set up an income template on which I record the date I finish a job, who the job was for, the specific project title, what I did (writing or editing or conference), and how much I was to receive. He has another column that keeps a running total of my income. Later I went in and added one more column—when I received payment—because of normal human error in losing an invoice or an editor forgetting to send my invoice to accounts payable.
He also set up a separate template for mileage, as that is figured differently on the business deductions.
Finally he set me up with an expense form. It has columns for the date the expense was incurred, the business name, product or service rendered, what category it will go under on the Schedule C, and the amount. Then when he does the taxes, he can do a simple sort (well, simple for him! LOL) and write the totals in the proper places. I hang onto the receipts just in case the IRS wants actual proof of my expenses. So far, that's not happened.
I'm willing to share these forms with anyone who is interested. They're not copyrighted, but they are flexible and you can work within the templates to set up something that works for you. Either leave a comment here with your e-mail address so I can send them to you, or e-mail me directly at marjorievawter at gmail dot com.