According to the Writer's Union of Canada, there are approximately 60,000 professional writers in Canada. Only 8% of these earn $25,000 or more. Two-thirds earn less than $5,000, and the rest earn between $8-12,000 a year.
In other words, don't give up your day job. Regardless of how much money a freelance writer is making, any earnings must be claimed on income tax forms.
Writing income comes from payments such as magazine publications, book royalties, writing grants, and reprint rights.
How do Writers Claim Writing Income?
Most income earned from writing must be claimed. One exception is prize money, which in general is not taxable.
If a writer is earning more than $75,000 dollars from his writing, the Writer's Union of Canada suggests that a writer incorporates as a business. Doing so will put him in a lower tax bracket and allow him to average his earnings over time.
For writers earning less than $75,000, income can be claimed on the personal federal income tax form. Depending on the particular case, writing income can be claimed as Other employment income, Other Income or Self-employment income.
See the Canada General Income Tax & Benefit Guide for specific details.
Writers earning less than $30,000 a year do not have to charge or collect GST.
What Expenses Can Freelance Writers Claim?
If you are claiming writing income, chances are you can also claim writing expenses.
Writing expenses include things such as:
- the cost of a computer
- a proportion of rent and utilities for home office space
- car trips and mileage related to writing (as a percentage of car insurance, repairs, gas, etc.)
- entire library of writing-related books can be claimed once
- writing course fees
The Canada Revenue Agency lists eligible business expenses on its website.
Showing Writing Expenses on Your Tax Form
Writing-related expenses work to offset the earnings made from writing.
Create a simple spreadsheet in a word processing program that shows your writing income and your writing expenses for the year. The total at the bottom of the spreadsheet will be your income minus your expenses.
Give the table a title such as “Income Statement for Bob Smith, Writer.” Attach this table to your tax forms when you file.
Remember that a self-employed person can claim a deficit for multiple years. For example, if your expenses for rent, a computer and a writing course came to $2,000 for a year, and you only made $300 from writing, you could claim a deficit of $1,700.
This negative number would be written under “Self-employment income” and would work to offset your income from other sources.
Keep Detailed Writing Expenses Records
Everything expense that relates to your writing should be claimable at some point in your career. For example, if you took a trip to Memphis in 1985 and publish a book about the experience in 2010, you can claim the cost of the trip against your book advance.
But only if you kept detailed records of your expenses.
Write the details of every purchase or lunch meeting on the back of the receipt, so you can remember later on. Same goes for long distance research phone calls, books purchased and investments in technology.
It might be worth investing in some personal finance software like Quicken or Moneydance to keep track of your writing expenses. These programs cost about forty dollars, but may save a lot of money later on.
For More Information on Writers and Taxes
The Writer's Union Of Canada published the Income Tax Guide for Writers (2002) which is available for sale on their website.
Debbie Ridpath Ohi has compiled a helpful list of Tax Tips and Resources for Freelance Writers on her blog Inkygirl. Most of the information applies to North America, and some specifically to Canada.
Remember that no matter how much you make from your writing, you must claim your income. It's a basic fact of being a self-employed writer.
By keeping track of writing expenses and filing your tax forms on time, you should be able to keep your taxes low.
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