Interview With Mildred Carter
Interview by Jenna Glatzer

Mildred Carter is a Federal Tax Analyst working with CCH, Inc.  The company publishes, among other things, the annual CCH Tax Guide For Journalists, available free on request to all writers.  The guide explains tax laws to writers in laymen's terms, and is a very helpful resource!  You can get a copy by sending your request and address to mediahelp@cch.com or calling (847) 267-2038.  

What is CCH?

CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served over four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, legal, securities, human resources, health care and small business markets. CCH is a wholly owned subsidiary of Wolters Kluwer North America. The CCH website can be accessed at www.cch.com. The CCH Federal and State Tax group web site can be accessed at http://tax.cch.com. 

Let's say I'm a new freelance writer, and I've only had about a dozen articles published.  What kind of tax forms do I need to file?

Whether you freelance full time, moonlight or have written a great novel in your spare time, you should think of yourself as running a business. As a freelance writer, you would need to file a Form 1040 with Schedule C, Profit or Loss From Business or (simplified Schedule C-EZ, Net Profit From Business) for reporting your business income and expenses as a freelance writer. You also may need a Form 1040, Schedule SE, Self-Employment Tax to determine whether you are liable for self-employment taxes.

How do I know if I should be paying estimated income tax quarterly, and do I need a form to pay it?

Generally, if you expect to owe at least $1,000 in federal taxes after withholding and credits, you'll have to file and pay estimated income tax each quarter, using Form 1040-ES, Estimated Tax for Individuals.

Let's say I win money in a writing contest, or I sell a photo along with a story, or I win a grant.  Do I need to report these as income?

Generally, scholarships, fellowships and grants awarded journalists or writers are taxable unless you are a degree candidate. If you are a degree candidate, the amount of a scholarship, fellowship or grant that is spent on tuition, fees, books, supplies and equipment is not taxable. However, if any part of the grant represents payment for your teaching, research or other services, that part is taxable. So, if you receive a grant to take a sabbatical from your regular job and write a novel, you'll have to pay federal income tax on the amount you receive.

If you win a prize in writing contest or other event, you must include it in your income. For example, if you win a $50 prize in a photography contest, you must report this income. Prizes and awards in goods or services must be included in your income at their fair market value.

How do I figure out my car expense deduction?

If you frequently use your car to get to the scene of a breaking story, to meet with sources or to do research for your writing projects, it's likely that you'll be able to deduct many of the expenses of operating your car. There are two basic ways of figuring out your car expense deduction: the standard mileage rate and the actual cost method. The standard mileage rate method is generally the easiest method to use. You simply keep track of you business, personal and commuting mileage during the year and multiply your number of business miles by the special rate set by the government (34.5 cents for 2001). To this amount, you can add the total cost of parking and tolls you paid while driving for business purposes. The actual cost method is more complicated to use, but may result in a larger deduction. You start with the same records that you would need for the standard mileage rate. You must also keep track of all of your expenses for the year, such as batteries, gas, insurance, supplies, repairs, oil, tires and depreciation.

How has the home office deduction gotten easier to meet?

If you use part of your home for writing or other business activities, consider the possibility of deducting some of the expenses of your home. Since 1999, the requirements have been significantly easier to meet. The definition of principal place of business has been broadened. You meet the principal place of business test if your home is the only fixed place where you handle the management and administrative duties of the business. This should make it easier for many people to claim the home office deduction, especially those who do a lot of interviews or research outside the office, but return there to do their paperwork.

Do I need to keep receipts for every small purchase I make (like stamps, paper, computer disks, etc.)? 

Yes. Whether you're an employee or self-employed, and whether you have a generous expense account arrangement or none at all, you'll have to keep records of all of your business expenses in order to get any tax benefits from them. It is important to keep orderly records, write down absolutely every related expense you have, and keep all you receipts if you expect any income at all from your writing.

How do I figure out the depreciation value of my office equipment?

If you purchase office equipment for business purposes, you can choose to deduct all or part of the cost in the first year under a special first-year write-off provision also known as the Section 179-expense election. The total amount of property you can write off in a single year can't be more than $24,000 (or your taxable income) in 2001. If you can't deduct the full cost of all your purchases under the first-year write-off, you should depreciate the rest. The method of depreciation used for business property is known as MACRS (modified accelerated cost recovery system), It lets you depreciate most business property over five or seven years, and to some extent, you can claim larger depreciation deductions in the first few years of purchase.

Let's say in the course of writing a story, I have $50 worth of expenses, and the magazine reimburses me for it.  However, the magazine then pays me in one check for the story and the reimbursement, so I'm being taxed on my expenses.  How can I resolve this?

If you're self-employed, the payments you receive are treated as part of your gross income and reported on your Schedule C, whether the amounts are earmarked as expense reimbursements or simply as payment for work. All of you allowable expenses are then deducted from gross income with the caveat that only 50 percent of meal and entertainment expenses are deductible. (A self-employed journalist would be able to deduct 100 percent of the allowable meal and entertainment expenses, however, if complete, detailed substantiation of the expenses is provided to the client. The client then has the 50-percent restriction.)

Is my health insurance deductible?

If you're self-employed, only 60 percent of your premiums are deductible on your Schedule C or C-EZ for 2000 and 2001. The deduction will gradually rise to 100 percent in 2003.

What kinds of retirement plans are best for self-employed writers?

In addition to a regular or Roth IRA, self-employed writers have three other choices: they can set up a SIMPLE plan (Savings Incentive Match Plan for Employees), a SEP-IRA (Simplified Employee Pension-Individual Retirement Account), or they can use a Keogh plan.

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