5 tax questions for writers – answered

5 tax questions for writers – answered

Gwynn Scheltema

At this time of year, writers across Canada are scrambling to organize their receipts and invoices before filing their income tax. I’ve been preparing taxes for several decades. These are five questions I often get asked by writers and artists.

1. If a writer has a day job and freelances too, can she claim writing expenses? 

Yes. A freelance writer earning revenue is considered a small business operator or sole proprietor, and therefore can deduct expenses like any other small business owner. Many people work as an employee at one job and run a business on the side. A freelance writer is no different. And the tax department requires you to declare any and all income you earn worldwide from whatever source.

That said, you will notice that I use the phrase “a freelance writer earning revenue.” If you are writing and submitting but not yet earning income, there are still circumstances when you can be considered to be “running a writing business,” but the tax department has guidelines that differentiate a “hobbyist” from a “small business person” that you should check first.

2. What kinds of expenses can writers claim?

Assuming that you are not considered a “hobbyist”, but are a “small business person,” then you can expense anything that you pay out “to earn revenue.”

Some examples would be: all the usual office type expenses like stationery and computer software and postage; also travel and phone costs for assignments; research expenses; professional fees for accounting; editing, transcribing, researching etc.; advertising; a portion of your computer and photography equipment, professional membership dues, professional development courses, conferences and writing retreats; and resources such as subscriptions to trade magazines.

 

Some meals and some entertainment expenses can be written off too. If you operate out of your home, you can also consider a “use of home” office expense, and if you use your own car you can consider a motor vehicle expense too. All these expenses, however, have rules and limitations attached, so check the Canada Revenue Agency website for details.

The golden rule is that the expense should be incurred to earn revenue and should be “reasonable in the circumstances.” Trying to write off a $4,000 trip to Paris to write an $800 article is not reasonable. But don’t short-change yourself either. Don’t forget the little things like parking and banking fees and taxis. And keep all your receipts!

3. What are the tax implications of a Canadian writer working with a USA  or UK publisher?

 

Money earned outside Canada will be have tax withheld at source AND must be declared on your Canadian tax return. But, Canada and the USA and UK have “double taxation agreements” in place, so there is a mechanism for you to apply to have your foreign taxes refunded.

 

4. What are the biggest mistakes you see writers making with their taxes?

Not starting to consider themselves a writing business soon enough. Most writers feel they should either be working full-time at writing to qualify, or that they should be making a profit first.

Also, not keeping receipts. You can’t claim things you have no receipts for, even if you genuinely spent the money on them. A good rule of thumb is to keep all receipts even if you are not sure if the expense qualifies and then decide later.

 

5. When does a writer need to register for a GST/HST number?

Writers, resident in Canada, are subject to the same requirements as any other self-employed persons or companies when it comes to mandatory GST/HST registration.

So when do you need to register? The simple answer for mandatory registration is: as soon as you hit the $30,000 gross revenue mark.

Image result for hst registrationBut it’s not quite that simple. Timing is everything. When you reach that $30,000 threshold is important. You are required to become a GST/HST registrant once you “exceed the small supplier limit of $30,000 in a single calendar quarter or in four consecutive calendar quarters.”

Say, for instance, you’ve only earned $10,000 by the end of November 2017. Then you land a large contract and they pay you on three separate $15,000 invoices: in December 2017, and January and February 2018. You earn $2,000 in March.

At the end of December 2017, your annual revenue [four consecutive calendar quarters] is $25,000 [$15K plus $10K]. You don’t need to register at this point, because you are under the $30,000 threshold.

By the end of March [1st calendar quarter], however, you exceed the $30,000 limit [January $15K + February $15K + March $2K.] Now you must register, even if you remain at the lower earning levels in April and beyond.

You also have the option of voluntary registration at any time. If you are prepared to do the added bookkeeping required, you can voluntarily register and take advantage of recouping any GST/HST you pay out on your expenses. Sometimes too, if you want to give the allusion that you are a bigger operator than you are, you can register and charge HST from day one. The client will likely assume then that you earn over $30,000 a year.

Useful links:

DlD YOU KNOW?

Writing retreats are allowable expenses for a writing business.

And our next retreat on offer from Writescape is Spring Thaw 2018,. April 20 to 24.This all-inclusive writing retreat is held at the fabulous Elmhirst’s Resort on Rice Lake in Keene. Stay for the weekend or treat yourself to an extra two days of writing.

Looking for writing time? Polishing a project? Looking for feedback from two professional editors? Or just want time to rejuvenate your creativity? Don’t miss Spring Thaw. 

 

 

Tax tips for writing income

Tax tips for writing income

Gwynn Scheltema

A query arrived in the Writescape’s comments mailbox last week the gist of which was:

I self-published a book in 2015 and sell via Amazon.com. I received a form in the mail (1042-S Foreign Person’s U.S. Source Income Subject to Withholding). My Amazon book sales are pretty paltry (a whopping $277!). Must I report this on my Canadian tax return? 

I answered in a private email, but thought that this question and others related to writing income may be on the minds of many Canadian writers preparing tax returns this time of the year, so below is the answer to this question and a few more tips about reporting writing income to get you started.

One of the many hats I wear, is that of a tax preparer at a local accounting office, which I have done for decades, so I do know a thing or two about filing Canadian taxes. And since 2009, Writescape has periodically offered a workshop on tax tips for writers and artists.

That said, a caveat: The tips offered here are general information only. Your tax situation could be influenced by other factors not dealt with here, so if you are at all in doubt, contact your accountant or follow the links to CRA’s website for more information.

What kinds of income are considered writing income?

  • royalties/ advances for book sales 9print/e-book) from your publisher (T5)
  • independent book sales, print and e-book, (possible foreign income slips )
  • grants, bursaries and residencies (T5 or T4A)
  • school visits and speaker honorariums (possibly a T4A)
  • access copyright royalties (T5)
  • public lending rights payments (PLR) (T4A)
  • freelance earnings (possibly a T4A)
  • workshops, coaching, retreat facilitation ( possibly a T4A)
  • writing contest winnings

How much do I have to make before I have to report writing income?

Canadian taxation works on the honour system. Even if you do not receive a T slip from the entity that paid you, you are obliged to report all your income from all sources worldwide. That includes sales through Amazon, PayPal, eBay and other websites, books sold at craft fairs, honorariums for being a guest speaker, etc.

Where on my return do I report my writing income?

That depends on whether you are, by Canada Revenue Agency’s (CRA) definition, a “hobbyist” or a “writer” operating as a small business. In VERY general terms:

  • a “hobbyist” reports T slip income on the lines instructed by the T slip. Generally, hobbyists do not deduct expenses, although deductions are allowed on some grants and scholarships.
  • a “writer” operating as a small business (with an expectation of profit), reports all income including income on T5s and T4As as part of business income on form T2125. (Be aware you may have to inform CRA by letter that you are doing so, so that they do not think you forgot to report the T slip income.)
  • any T4 income as a writer or editor is employment income and should not be reported as part of a writing business.

What do I do about income from outside Canada?

  • Foreign T slips you may receive include a 1042-S for the US or a SA103S for the UK.
  • Canadian residents must file worldwide income regardless of whether a return is required or not in the foreign country where the income was generated.
  • Double taxation agreements exist between Canada and many countries, e.g. the US. This means that if you paid tax on certain income in the US, you will not be taxed again on that income in Canada. CRA may, however, charge a difference between rates.
  • Foreign income must be reported in Canadian dollars. You can use the exchange rate for the date/s the income was received, or you can use the Bank of Canada average rate for the year.

 Best for last

  • Most contest winnings are considered “prescribed prizes” and are not reportable or taxable. Yeah!!
  • Unlike employment income, writing business income and grants and bursaries can be reduced by expenses paid to generate that income. What expenses? That’s a whole other blog.

Useful links

 

 

 

You Earned It – Now Keep It

You Earned It – Now Keep It

Taxation Tips for Writers and Artists with Gwynn Scheltema.

Are you a writer, storyteller, musician or visual artist? Whether you get paid or not, Revenue Canada offers aspiring and professional arts community members unique tax considerations. These are not available to other occupations. So how can you benefit from them?

 

tax

Knowledge is the key.

Participants will learn the answers to such questions as:

  • How does Revenue Canada define “freelance”?
  • If I win a writing contest, is that money considered income?
  • What if I’m published but I don’t earn any income?
  • Should I keep all my novel expenses for the year when it’s published?
  • Do I have to register for HST?

This workshop…

  • has information you can use
  • answers writer-related questions
  • has creative writing tax-ercises
  • is loaded with tax-saving tips
  • is practical and easy to understand


Gwynn Scheltema is a full-time writer and editor, owner of The Write Connection, and a partner in Writescape.ca. Before turning to writing full time, Gwynn worked for over 25 years in accounting, teaching and administration. She received her accounting designation in 1974 and has worked in the accounting field as an accountant, auditor and tax preparer since that time.

 

Send us an email to be notified of the next date for this workshop: info@writescape.ca