Income Tax Tip for Canadian Writers
[Note: this post is modified from a piece I wrote for the March/April 2012 Outdoor Writers of Canada newsletter, Inside Outdoors.]
It’s that time of year again when we all must sit down and face the reality of just how much we did or did not earn last year in preparation of our annual income tax returns. Part of that preparation is making sure we report our writing business income and deductions correctly to pay as little tax as legally possible. However, many writers are not aware of how they should be reporting certain income to get the greatest benefit in both the short and long term. I am no accountant or tax lawyer but I have been in this business for over 30 years and have had a long relationship with the Canada Revenue Agency (CRA).
T5 Slips
Book publishers and Access Copyright (AC) report to the CRA income earned by writers and photographers, etc. as royalties on T5 slips. The instructions on the form tell you to report the revenue on line 121 of your return as investment income or line 104 as other income. However, your AC and publisher revenue is NOT investment income. It is income you have earned as a result of publishing your writing or photography and rightly should be reported on line 135 of your tax return as earned business income as explained on the CRA web page.
Why is this important?
- As earned writing income you can legitimately subtract your writing expenses from it. If you are like most writers and barely break-even or only make a little profit, every piece of earned income is important, especially to the CRA in case you ever have to prove that you have a reasonable expectation of making a profit (i.e., pay taxes) from your writing. It’s always a good idea to show a profit from time to time in case that expectation is questioned.
- You get credit for earning the income on such things as how much you can contribute to a Registered Retirement Savings Plan (RRSP), and how much you will eventually receive from the Canada Pension Plan (CPP) and Old Age Security (OAS). This may not seem important if you are young but believe me it is as you approach retirement age. Your CPP (when the time comes) is calculated based on the amount of income you have earned over the years. The key word here is “earned”. Revenue from investments (dividends/interest) does not qualify as income for calculating what you receive from CPP or OAS or invest in an RRSP. Every piece of earned income you claim over the years will affect how much you receive from your RRSPs, CPP or OAS in your “golden years”.
So, claim your AC royalty as earned income in your writing (communication) business. But why does AC, and book publishers report revenue paid to writers on T5 slips? That’s a good question, and I have never heard a good explanation except that it is not salaried earnings (reported on T4 slips) and the CRA wanted them to report the earnings on something…? Writers have struggled with the CRA on this issue for decades. Several years ago, the combined efforts of The Writers’ Union of Canada (book authors) and the Professional Writers Association of Canada (periodical writers) convinced the CRA to issue a policy statement that those taxpayers who claim writing and artistic business income can claim royalty earnings from their publications as earned business income (it was always the case, but until then not formalized). That statement is reflected in the CRA web page explaining what you must do to report this income.
That’s great but often the minions at the CRA (or its computers) haven’t heard of this policy, and will flag your return because the CRA has received a T5 slip they believe you have not claimed as income. So, here is what you must do:
- if you submit a paper return, include the T5 slip as required and write on it that this income is reported as part of your writing business (line 135) and not as investment income. Enclose a covering letter explaining where the income is reported.
- if you file electronically (where receipts etc. are not included), you need to also post a physical letter to the CRA (with all the details of who you are, SIN etc.) explaining why you did not report the T5 as investment income.
All that done, you may still get a reassessment back in a few months, showing the CRA has recalculated your tax to include the T5 as investment income (the reassessment is issued by a computer), thus double crediting that particular income. Don’t get angry (although easy to do). Just pick up the phone and call them (using the toll-free number found near the end of the reassessment) and explain that you are a writer and that the income on these particular T5 slips is income you have earned from your writing and was reported as part of your business income on line 135 of the T1 form. The first time this happened to me is when I learned that I should send a covering letter on each return explaining the situation. It’s a pain in the rear-end, but I do it (I have a form letter on my computer where I just change the dates). Also, I used to file electronically, but this hiccup with the T5 and a couple of investment issues where cover letters are required has convinced me that I should be sending in the physical return with all the attachments. If you use a tax accountant to prepare your return, alert him or her of this situation and why it is important to you. Print the CRA web page I’ve linked above.
Now, I know it is real easy to give in to the CRA and just report this income as investment, but DON’T. You will lose out in the long run. Take the extra steps. You won’t regret it.
Writing for Free
As I have written elsewhere, it is difficult for a person to earn a living as a freelance writer. It is not impossible. I did it for many years, but I had to work very hard, always thinking about where my next job was coming while scrambling to meet the current-contract deadline.
Although I’ve written for magazines and newspapers, and in the early years got paid well for those articles, I made most of my money from contract writing for governments, corporations and non-profit organizations. Contract writing paid the bills and put food on the table. Why? Because I got paid for the actual amount of time I put into the project, not just the words published.
Although being paid by the word by periodicals was technically supposed to cover my expenses, it never did. Twenty-cents-a-word, which is the going rate for many local or regional publications (and has been for decades), barely pays for the time it takes to decide on a project, locate information sources and fire up the computer, let alone actually research and write the article. Yet, that is the rate many of us are paid. Why do we accept it? Because it is often the only “gig in town” for the subjects we like to write about.
Sure, there are $1-a-word and higher rates around for some national or international publications, and I’ve written for some of them. However, the competition for space is intense and you cannot depend on getting an assignment every time you think you have a good idea.
Now, with the advent of the Internet and the World Wide Web, there are a lot more writing opportunities. However, many of those opportunities pay very little if anything at all. I am often approached by web sites to send them stories, either new or previously published, without any mention of how much they are willing to pay. When I question them about fees, they quote me some low-ball figure (“beer money” as one publisher told me) or tell me that publishing with them for free will increase my media profile (as if their site is God’s gift to public relations).
So, the question is often asked, especially by writers trying to break into the business, “when should I write for free?” My glib answer is “never”, but if truth be known, that answer would by hypocritical on my part. I often write for free, especially for non-profit organizations with whom I’m associated. However, I do this as sparingly as possible, always placing my “paying” projects in highest priority. That is what you must do if you are truly trying to become a so-called “professional”, i.e., earn a living from your writing.
But if you are trying to break into the business and have little or no record of publication, writing for free on the Internet or in low-budget printed publications is a temptation. Having publication credits on your resume is important. I just caution that you should make sure the publication truly cannot afford to pay you (struggling non-profits being the best examples) and that you receive ample credit for your work and that you give them “first-time rights” only. In other words, you want to be able to sell that piece to another publication on the remote chance they see it and wish to reproduce it. Understanding your copyrights is fundamental to being a successful writer!
So, how do you know whether a publication cannot afford to pay you? Do your research. Are they truly not-for-profit? On the website where your piece will appear, for example, is there advertising? If so, who is advertising? Many sites—especially for-profit businesses—requesting writing pieces for little or no fees have advertisers whom you know are paying big bucks to be there. If your writing is going to help drive visitors to their web site (and hence to the sites of the advertisers), why are you not getting a piece of that advertising revenue? Sure, such exposure might be beneficial for your business profile, but should you be subsidizing a business with your free writing? You know the business paid good money to have the web site developed and pays a fee to have it published; why should your writing not be part of that cost? If they cannot afford to pay for your writing, perhaps they should not be publishing it.
The bottom line for me is indeed the bottom line. I have only so many hours in the day/week/month to do my writing. Although I want my work to be published and read (whether in print or on the web), I also want to make money from it. Thus, I only do minimal “free” writing. It has to be for non-profits, it must not interfere with my for-profit work, and I must be committed enough to do a good job for minimal research.
How much free writing you do is a personal as well as a business decision. If you must put food on your table with the money you earn from your writing, then business trumps personal much of the time. The development of a business plan (where you establish goals and objectives and plan how to reach them) will back this up. If, however, you are not concerned about making a living—perhaps writing as a hobby or to supplement your income—then writing-for-free may indeed be beneficial, if just to get your name in public view.
Keeping Records
[Note: I wrote this article for the 2010 September Outdoor Writers of Canada newsletter, Inside Outdoors.]
Copyright (C) 2009 Don H. Meredith
When I first saw the announcement last spring (2010) about Access Copyright’s new Payback program, I felt a cold chill run up my back. As you remember, Payback required writers and photographers to submit by May 31, 2010 the number of publications and photographs they had published for each of the last 20 years. The cold chill was the result of my contemplation of how I was going to come up with all that information. I’m sure I was not alone. However, there is nothing like waving money in front of somebody’s nose to get them to do a job they otherwise would not.
I suspect I was a bit better off than many, as I try to keep a running tab of what I’ve published over the years. This list or bibliography has helped me in several ways, from keeping my résumé up to date to just reminding me when and where I wrote about a particular subject. However, I failed to note how many pages or photographs I had published with those articles and books. So, I had to make a trip down to my basement storeroom and rummage through my archive files to resurrect my tear sheets and count pages and photos. My bibliography did come in handy to ensure I found all my publications. On the other hand, the search found a few articles I had neglected to include in the bibliography.
Keeping records is not something that comes easily to the creative mind. When you are creating a story or composing a photograph, you are not thinking about how it should be found years down the road. However, as Benjamin Franklin noted, “nothing is certain but death and taxes,” and both death and taxes require records to be kept. Now, you may not be too concerned about what happens to your writing after your death, but your heirs and maybe even your readers might be. Taxes are more of a concern for the living, and record keeping is necessary to ensure you pay as little tax as legally possible.
Taxes
When I first started my writing business, over 30 years ago, I quickly learned it was important to keep a record of income and expenses. In those days, the personal business computer was just a fermenting dream in the minds of people like Steve Jobs; so, most small business records were kept in the old-fashion manual way. I used columnar graph paper, one page to record income and another to note expenses. In those early years I found it easy to forget to record receipts for supplies etc. but after I did a couple of tax returns, it soon became apparent that I should become a lot more disciplined if I wanted to keep most of what I earned.
Today, spread-sheet computer programs can handle a ledger quite easily and do all the math. There are also accounting programs that look after all financial aspects of a business; but I find my spread sheet program (Microsoft’s Excel) adequate for the business I run (no employees or large inventory). Over the years I’ve developed a business template that allows me to easily enter data, organize it to correspond to the Canada Revenue expense categories, and see where I stand at a glance. Come tax time, it is quite easy to transfer the totals over to the tax form.
No matter how good your software, if you don’t use it, it isn’t much help. As soon as I receive a payment for my writing, or buy a memory card for my camera, I make sure I record same on the spread-sheet. This saves a lot of work at tax time, and like I said, I know where my business is financially at any given moment, allowing me to make informed decisions about such things as quarterly tax payments.
Now, I know some of the form-phobic among us prefer to dump all their receipts and cheque stubs on accountants at tax time and let them figure it out. I can understand this. The tax form is a complicated mess. However, I have found computer tax programs to be quite easy to use (I use Intuit’s QuickTax). The good ones check your work and make sure you are not missing deductions that may apply. They also allow you to file your return on line, speeding your refund if any.
Death and Access Copyright
Up until the establishment of Access Copyright (AC), there was no big incentive to keep a complete record of what you wrote or photographed. Sure, you might keep a list of some of what you published to add to résumés, etc. and it might be informative for your heirs to see in one place all that you did; but the act of recording everything just didn’t have any immediate benefits. When Access Copyright came along (as CanCopy), that all changed. Suddenly there was a need to record with AC what you’ve published so that if it was copied, you could receive royalties. If you were like me, you probably only recorded with AC those publications you thought might be of interest to someone to copy, usually your more recent publications. After all, AC’s old online recording program (Rights Management System) left a lot to be desired. However, Payback has ensured that we need to keep a record of everything we publish.
Bibliographies can be recorded as either a spread sheet or word processing document. I store my bibliography on a MS Word document. where I record all pertinent information about when, where and what. There I can easily copy and paste things to other documents if necessary. However, Payback’s requirement to also record number of pages and photographs, forced me to make another list on a spread sheet. There I can set up formulas to determine the total number of pages and photographs. This is the sheet I will use each year to update my Payback submission.
Keeping records need not be an arduous task. Setting up templates can initially be time consuming, but once done the work becomes easier. The next thing is to maintain the discipline to get the recording done and move on to other things.
Welcome!
Welcome to my blog about the writing business. I am a freelance writer in Canada, and have earned much of my living from writing over the last 30 and more years. I write a monthly column for the Alberta Outdoorsmen magazine and have written and published many articles and books about the outdoors and the environment. Some examples of my writing are available at my website and on my “Don Meredith Outdoors” blog. This blog is where I cogitate and vent about the issues facing writers, especially in Canada, but also the world. The digital age has brought many benefits and perils and much needs to be aired and discussed.
Please feel free to comment and let me and others know how you feel and what you believe can and should be done.
Disclaimer: The opinions expressed here are my own, and unless otherwise noted, do not represent those of organizations that I might represent or of which I am a member.