Are you in the business of writing? If your answer is yes there are some things you should know.
Many authors operate as sole proprietorships (i.e. self-employed). In the United States income from a sole proprietorship form of business is taxable on your federal income tax Form 1040, Schedule C. (If you have incorporated or elected to be taxed as any form of business other than self-employment there are different rules that apply.)
If you are a business, your expenses that are both ordinary and necessary are deductible on your tax return. The key issue here is to establish that you write with a profit motive and qualify as a business, not a hobby. Hobby expenses are not deductible in the same manner as business expenses.
Therefore the first thing you need to do is to establish that you have a profit motive for your “writing business”. Even with some income from your writing, there is a possibility that the IRS might consider your writing a hobby and not a business. The rules to determine whether your writing is a business or a hobby are complex and you might want to discuss these issues with your tax preparer or an attorney.
Some of the factors considered to determine if you have a writing business include.
- The amount of time and effort devoted to writing for publication and profit.
- The extent to which you depend on the income from this writing.
- If losses exist are they beyond your control or do they exist during the start-up phase?
- Have you earned income from writing in the past?
- Do your actions indicate that you are attempting to sell what you write?
- How are you promoting your writing business
(If you are planning to deduct expenses on your tax return I suggest you consult a qualified tax consultant to help you determine whether you should report your income as a business or a hobby. The rules are complex and each situation may be different.)
If you determine that you are in the business of writing, expenses that are both ordinary and necessary are deductible. Ordinary expenses are expenses that are common and accepted in the industry. A necessary expense is one that is helpful and appropriate for your business. The best time to establish a system of tracking these expenses is when you start writing seriously.
Some common deductible expenses include the following:
- Office rent
- Gifts, travel and entertainment
- Answering service
- Post Office box rental
- Legal fees
- Water and power
- Architectural fees
Keep in mind these apply only to the business portion of these expenses not the portion that is for personal use or benefit.