by Susan Watts

As an author, your home office is not just a space for work; it's your sanctuary, your creative haven where the magic of storytelling unfolds. But did you know that your home office could also provide financial benefits in the form of tax deductions on your individual US Federal tax return?

The home office deduction allows you to claim a portion of your housing costs as business expenses on your tax return, potentially reducing your tax liability. In this blog, we'll explore how authors can leverage the home office deduction to their advantage, including using it to store inventory.

Defining the Home Office Deduction

The home office deduction is available to self-employed individuals, including authors, who use a portion of their home exclusively and regularly for business purposes. To qualify for this tax benefit, your home office must meet two primary criteria.

1. Exclusivity

You must use the area claimed as a home office exclusively for business activities. The space doesn’t have to be marked off by a permanent partition, it can be any separate area. However, it’s important to note that you cannot use the space for any personal purposes. For example, the regular use of the kitchen table cannot be considered a qualifying location, as it is not exclusively dedicated to business. However, a desk in a corner of a room could qualify if used exclusively for work. 

You should ensure that only business-related items occupy the space designated for your home office. For instance, if your home office doubles as a guest bedroom, you can only claim the part of the room that is dedicated to your business as home office expenses. Even personal belongings like children’s toys can disqualify the area.

2. Regular Use

Your home office space should be regularly used for conducting business. Occasional or sporadic use may not qualify, even if the space serves no other purpose. If you don’t have any other primary places of business, this test is generally not an issue.

What expenses can you deduct?

Once you determine that your home office meets the eligibility criteria, you can deduct a portion of various expenses related to your home. These may include:

1. Utilities: You can deduct a portion of your utility bills, like electricity, heating, and water, depending on the percentage of your home used for business.
2. Rent or Mortgage Interest: If you're a renter, a portion of your rent is deductible. Homeowners can deduct a portion of their mortgage interest, homeowner’s insurance, property taxes, and depreciation. Depreciation is an allowance for the wear and tear on the business part of your home. Depending on your situation, the depreciation expense claimed in prior years may be required to be reported as a taxable gain in the year you sell your home.
3. Repairs and Maintenance: Expenses for repairing and maintaining the portion of your home used for business are deductible. This includes costs like painting, repairing the roof, or fixing plumbing issues.
4. Office Supplies and Equipment: You can deduct any supplies or equipment purchased for your home office, such as desks, chairs, computers, and stationery, as business expenses.

Using the Home Office Deduction to Store Inventory

For authors who self-publish or maintain inventory of their books, the home office deduction can also extend to storage space within the home. If you store inventory, such as books, manuscripts, or promotional materials, in your home office or in a designated storage area within your home, you may be able to deduct a portion of your home-related expenses associated with that space without meeting the exclusive use test.

To claim a home office deduction for storage, you must meet all the following tests:

1. You sell products at wholesale or retail as your trade or business.
2. You keep the inventory or product samples in your home for use in your trade or business.
3. Your home is the only fixed location of your trade or business.
4. You use the storage space regularly.
5. The space you use is a separately identifiable space suitable for storage.

An example:

The only fixed location for your author business is your home. Part of your basement is consistently used to store inventory. Occasionally, you utilize the space for personal reasons. You can still deduct the expenses for the storage space, even if it’s not exclusively used for business.

When claiming the home office deduction for inventory storage, keep detailed records of your inventory and any expenses related to its storage, such as shelving, storage containers, or rental fees for off-site storage units.

Calculating Your Deduction

Whether you're claiming the home office deduction for your workspace or for inventory storage, you'll need to calculate the portion of your home-related expenses that you can attribute to your business use. You have the option to do this using either the simplified method or the regular method.

1. Simplified Method

• Under the simplified method, you can deduct $5 per square foot of your home office space, up to a maximum of 300 square feet. This means the maximum deduction you can claim using this method is $1,500 (300 sq. ft. x $5).
• This method is straightforward and doesn't require detailed record-keeping of actual expenses. It's particularly beneficial for those who prefer a simpler approach to calculating deductions.
• To use the simplified method, you only need to determine the square footage of your home office space and multiply it by the applicable rate.

2. Regular Method

The regular method involves calculating the actual expenses related to your home office and determining the percentage of your home used for business.

To calculate your deduction using the regular method, you'll need to determine:

• Direct Expenses: These are expenses that apply solely to your home office, such as repairs or improvements made to the office space.
• Indirect Expenses: These are expenses that benefit both your home and your home office, such as mortgage interest, property taxes, homeowner’s insurance, utilities, and maintenance costs.

Once you've identified your direct and indirect expenses, you'll allocate them based on the percentage of your home used for business, which is typically calculated by dividing the square footage of your home office by the total square footage of your home.

• For example, if your home office occupies 300 square feet out of 3,000 square feet, the percentage of business use would be 10% (300 sq. ft. ÷ 3,000 sq. ft.).
• You would then apply this percentage to your total indirect expenses to determine the deductible amount. For instance, if your total indirect expenses amount to $10,000, your deductible amount would be $1,000 (10% of $10,000).
• Additionally, you can deduct 100% of your direct expenses related to the home office.

It's crucial to keep thorough records of all expenses and maintain documentation to support your deductions in case of an IRS audit.

How to Decide

Deciding which method to use depends on your individual circumstances. While the simplified method offers ease and simplicity, the regular method may result in a higher deduction if your actual expenses exceed the simplified rate. Consider factors such as the size of your home office, the amount of your expenses, and your preference for record-keeping when determining the most advantageous method for your situation.

You should also note that the home office deduction is limited to the net income from your business before expenses related to your home office deduction.

If your home office expenses exceed this limitation and you use the regular method (actual expenses), you can carry the non-deductible portion forward to your next year’s return. However, you will still be subject to the business income limitation for each subsequent year.       

Tips for Maximizing Your Deduction

To ensure you're maximizing your home office deduction while staying compliant with tax regulations, consider the following tips:

1. Keep Accurate Records: Maintain meticulous records of your home office expenses, including receipts, utility bills, mortgage statements, and inventory-related expenses.
2. Document Your Home Office and Storage Space: Take photos or create a floor plan highlighting both your home office and any designated storage areas used for inventory. This documentation can serve as evidence in case of an IRS audit.
3. Consult a Tax Professional: Tax laws and regulations can be complex and subject to change. Consulting with a tax professional who specializes in working with authors or self-employed individuals can help ensure you're taking full advantage of available deductions while avoiding any pitfalls.

Final Thoughts

By understanding and leveraging the home office deduction, including its application to inventory storage, you can not only optimize your writing environment but also potentially reduce your tax burden. Take the time to familiarize yourself with the eligibility criteria, allowable expenses, and calculation methods, and consider seeking professional guidance to make the most of this valuable tax benefit.

For further information, you can also read Publication 587 on the IRS website. With careful planning and documentation, your home office can become not only a source of inspiration but also a savvy financial investment.

Do you use a home office? Do you itemize that deduction on your tax return? Please feel free to ask Susan questions down in the comments!

About Susan

Under the pen name Michelle Allums, Susan Watts has authored a young adult urban fantasy titled, The Jade Amulet and is currently writing the sequel. Her short stories are also included in the anthologies Christmas Roses and Forever and Always.

Susan has dedicated over four decades to training in multiple martial arts styles and holds the impressive title of a five-time US Karate Alliance world black belt fighting grand champion. Through her karate school, she is able to impart martial arts and life skills. Susan also incorporates her martial arts knowledge into her writing.

An avid triathlete, she keeps in shape by running, biking, and swimming. She lives in the country with her husband, where they raise animals and enjoy being outdoors. Susan also has three grown children and numerous grandchildren. In addition, she is a CPA and VP of finance for a company in her hometown. 

You can connect with Susan on social media or her website.

Disclaimer:

This blog provides information intended for general informational purposes only and should not be construed as tax advice. While we strive to provide accurate and up-to-date information, tax laws and regulations may vary depending on your jurisdiction and individual circumstances. Therefore, it is recommended that you consult with a qualified tax professional or accountant to assess your specific situation and determine the applicability of any tax deductions discussed in this article to your home office expenses. We disclaim any responsibility for any actions taken or not taken based on the information provided in this blog.

Top photo purchased from Depositphotos.

by Jenn Windrow

In last month’s post, we discussed how self-publishing is a business. And you the author are in charge of doing everything to make that business run. However, there are some things you can’t do alone, and editing is one of those things.

That’s why even if you go with a big press or a small press the first thing they offer the author is editing. So, after you’ve self-edited, it is time to find a professional.

The different kinds of editing.

There are a few different kinds of editing…

Developmental or content editing

This is the editor who digs into your story, plot, characters, ending, all the things that make your book a page turner.

A good developmental editor will tell you when you haven’t included enough information or even too much. They will tell you if a character is likeable or not. They will work with you to tie up lose threads. They will let you know if your ending is satisfying or leaves too many questions. And sooooo much more.

Honestly a good developmental editor is worth their weight in gold. And I am not just saying this because I happen to be one. I have worked with plenty of developmental editors on my own books and they are a huge part of the publishing process.

After you’ve worked with your critique partners or husband or friend, and they’ve read your book and told you what they like and don’t like, hire a professional developmental editor. Someone who is objective and paid to tell you the truth about your story and help you shape it into something a reader can’t put down.

Copy Editor

These are the editors who cross those T’s and dot those I’s. They go through each word and check for spelling errors, overused words, bad grammar, and proper punctuation. They are the final stage of making your book as good as it can be.

I’m not someone who knows all the rules to proper punctuation, I rely heavily on my copy editor to do their job and help me get all those pesky commas in the correct place. Trust me, my copy editor has her work cut out for her when it comes to my books, and she knows how much I appreciate her.

Galley Edits

The last stage of editing your novel before you can upload it for pre-order or publish it is the galley edit. Sometimes called a line edit.

This is usually done by you, the author. You will go through your final manuscript, line-by-line, word-by-word, and make sure that you or your editor didn’t miss something. And trust me, misspellings and forgotten words happen in all novels. Even your Big 5 authors. I am sure you’ve read a book, maybe several that have had errors in them.

It’s hard to catch them all.

I will say this, no matter how times you go through a book, you will find some small errors.

When my first book was released, I was horrified to see that a line that was supposed to say "gear shift" said "gear shirt". I mean how many times had I read that line, had my publisher read that line, only to have it slip through the cracks.

It happens to the best of us, but one of the many good things about indie publishing, is when you see an error, you can fix it, then just republish asap without having to go through the gate keepers to make a change.

Finding a good editor

There are so many things too look for when you are searching for an editor. Personally, I think a lot of it has to do with a solid working relationship. If you don’t like them personally, you won’t like working with them. If harsh criticism bothers you, then having a bulldog as an editor might not be right for you.

How do you find one?

• Word of mouth is a good way to find someone.
• Ask your writer friends who they have worked with.
• Google is another way.
• And there are plenty of self-publishing Facebook groups that help with finding good editors.

No matter how you go about looking for an editor, there are plenty of really good ones out there.

Final Thoughts

Editing is an important investment for every author. In my opinion, the second best investment you can make as an author. Remember, you never get a second chance to make a first impression, and editing helps make sure it is a good one.

If you have any questions about the editing process, please add them to your comment below and I will be happy to answer.

About Jenn

Sass. Snark. Supernatural Sizzle. 

Award winning author of Urban Fantasy and Paranormal Romance. Vampires, Greek gods, and a bit of Demon Destroyer fun for everyone.

Jenn Windrow loves characters who have a pinch of spunk, a dash of attitude, and a large dollop of sex appeal. Top it all off with a huge heaping helping of snark, and you’ve got the ingredients for the kind of fast-paced stories she loves to read and write. Home is a suburb of it’s-so-hot-my-shoes-have-melted-to-the-pavement Phoenix. Where she lives with her husband, two teenagers, and a slew of animals that seem to keep following her home, at least that’s what she claims.

Website: https://jennwindrow.com/

Top photo from Depositphotos.

by Lisa Norman

Our writing profession is full of Shoulds. You should:

• post on social media.
• blog.
• invest in paid advertising.
• go traditional.
• go indie.
• sell on your own website.

And then there’s the tech advice! You should:

• use Microsoft word.
• use Grammarly.
• use Pro Writing Aid.
• write on a Mac.
• write on a PC.

The shoulds are endless and contradictory!

Writing teachers can’t even agree on basic writing advice!

• Write every day.
• Write in the morning.
• Write every free moment.
• Write to market.
• Write from the heart.
• Write what you know.

Some advice is good, and most of it is good for someone. But the question is: Is it good for you?

A small-business owner will start a business with a business plan. They'll research customers, goals, etc. But so often as writers, we forget that we are business owners.

Let me be clear: you cannot do everything you'll be told you should do.

You cannot use every great piece of software.

You cannot do all the amazing marketing things and still get your writing done.

What do teachers mean when they recommend these things? Sometimes they're more focused on their business model than on your best interests. Sometimes they are teaching power techniques that may not work for you or your genre.

In the end, you need to be a business owner and think strategically about what is best for your career.

Start with your goals.

What do you actually want to accomplish?

What makes you happy, keeps you sane, and gives you joy?

Understand that some of what may be best for you may not be what's best for others.

Do you want a six-figure career? Are you comfortable with rapid release? Then get to know your audience and start writing! Learn marketing and make it happen! Focus your efforts, and when something comes across your path that you should do, check it against your goals.

Is this good for your goal? Or just an interesting distraction? Will it help you succeed or just add stress?

Are you a passion writer with a story to tell? It may take you 10 years to write a book, and that’s fine. Because that is meeting your goal.

Understand: there are some good things that will also stifle some people's creativity. Something that damages your mental health isn't good no matter the potential gain. There are excellent software solutions that I don’t recommend for some of my clients. Why? Because the software will interfere with their creative process. They need to write first, analyze later.

You know your situation and your creative spirit better than anyone else.

Choose your path. Choose what gets your attention.

What are some shoulds that you've realized are should nots for you?

About Lisa

Lisa Norman's passion has been writing since she could hold a pencil. While that is a cliché, she is unique in that her first novel was written on gum wrappers. As a young woman, she learned to program and discovered she has a talent for helping people and computers learn to work together and play nice. When she's not playing with her daughter, writing, or designing for the web, she can be found wandering the local beaches.

Lisa writes as Deleyna Marr and is the owner of Deleyna's Dynamic Designs, a web development company focused on helping writers, and Heart Ally Books, LLC, an indie publishing firm.

Interested in learning more from Lisa? Sign up for her newsletter or check out her classroom where she teaches social media, organization, technical skills, and marketing for authors!

Top image from Depositphotos.