Writing: Business or Hobby?
One of the most misunderstood and misinterpreted rules on filing taxes and writing is the “hobby rule” concerning profit. Some people will claim that you must make a profit three out of five years in order for your writing to be considered a business and your writing expenses deductible, but that is not necessarily the case. And thank goodness. If you consider that the average time from beginning writing to sell a fiction novel is eight years and it often takes three to five novels before an author is in the black, then that’s over a decade of expenses that you have the capability of deducting, as long as you meet certain criteria.
The way the IRS regulations actually read is that there is an automatic “assumption” of profit motive if you make a profit three out of five years, but not making a profit three out of five years does not automatically mean you don’t have a profit motive. It only means that if audited, you need to prove that your motive is to make a profit from your writing.
So how do you prove a profit motive? Simple – write and keep really good records. Keep all your rejection letters and lists of your submissions. If you’re a new fiction writer and not yet at the submission stage, then track how many pages you write a day and how many hours you dedicate in total to writing rough drafts, studying craft and learning the business. It is hard to deny a profit motive if a reasonable amount of effort and time are spent pursuing publication.
Conduct yourself as a business. Join professional organizations. Attend conferences. Join writer’s forums and exchange information with other writers. Establish critique partners and exchange work for review. Purchase writing technique books and study them in depth.
Keep meticulous business records. Maintain a spreadsheet, either computerized or manual of all your writing expenses. Include the date, description of the expense and amount for every expense noted. Divide your spreadsheet into column that matches the lines on a Schedule C to make tax preparation easy. Keep a mileage log of all business mileage. Deductible mileage includes things such as trips to the store to purchase writing supplies, mileage to attend conferences and meetings with critique partners and writer’s groups.
© Jana DeLeon. All rights reserved.