On January 13th, Sandra Fitzpatrick gave a presentation on Canadian income tax law for writers to Mystery Writers Ink. Sandra Fitzpatrick has been doing taxes professionally since 2006; she shared with us some important tips about organizing your tax information and tracking your income and expenses.
Sandra recommends that writers keep track of their income on a monthly basis. An Excel spreadsheet is one of the best methods to track income. Keep a record of the date that you received income, the source of the income, the total amount and the amount of GST collected. Writers should issue a receipt for income and record the receipt number in the spreadsheet.
Keep track of your expenses on a monthly basis as well. Set up another Excel spreadsheet to track expenses.
You need to be able to prove to the Canada Revenue Agency that you have a real business and that you are trying to show a profit, so for each expense that you claim; you should have a receipt to support it. On the receipt, write the reason for the expense, if it is not obvious.
A credit card statement is not a sufficient receipt. For example, if you pay for gas at a service station, then you need to be able to show that what you paid for was gas for your car, not a newspaper, coffee or snacks that tempt you as you pay for the gas.
Some expenses that writers can claim are:
- Two writer's conventions per year (keep track of editor and agent appointments)
- Research expenses, including travel
- Meals – 50% of the bill including the tip and GST
- Courses taken to further your business
- Office supplies
- Magazine subscriptions for research purposes
- Guidebooks and maps for research purposes
- Books on writing
- Office equipment where you may have to claim Capital Cost Allowance (ask your accountant)
The easiest way to claim your car expenses is to keep track of your mileage. CRA sets a rate per kilometre that you can claim as an expense. (About $.50 per kilometre) Check the CRA website as the rate changes from time to time.
Home Office Expenses
Home office expenses, unlike other expenses, can be deducted only against your writing income. If you have a home office, then keep track of your mortgage interest or rent, taxes and utilities. If your home office is 10% of the area of your home, then you can claim home office expenses of 10% of house expenses. If your home office expenses are more than your writing income, you can carry the unclaimed amount over to future years to be claimed in the year when you get that big advance.
If your business is successful, in April, you will have to pay your taxes. One method to make certain you have the cash on hand is to save 25% – 33% of every check you receive. At the end of the year, after you pay your income tax, you can either save or spend the rest.
Find a filing system that works for you. If CRA ever knocks at your door, you will have to be able to produce your records to confirm your income and your expenses. You will have to be able to show that the there was a good business reason to pay the expenses that you claim in your income tax return.
If you make more than $30,000 per year, you need to collect and pay GST to CRA. You will need to apply for a GST number. It is easiest to pay GST annually. Every time you collect GST, transfer it to your savings account, so at year-end, you have the money to pay the tax. Otherwise, you may be paying penalties and interest.