Hatrack River Writers Workshop: Your writing is a business! Do your taxes accordingly!

This is topic Your writing is a business! Do your taxes accordingly! in forum Open Discussions About Writing at Hatrack River Writers Workshop.

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Posted by Brad R Torgersen (Member # 8211) on :

OK, I wish I'd known this before I went to Kris'n'Dean in June.

You don't have to be published to file your writing expenses with your taxes.

This article explains a lot:

http://www.go-publish-yourself.com/articles/writing-related/thibodeauxp.php

As I said in the WOTF thread, I am doing my Schedule C and I am filing everything I possibly can on it.

Posted by extrinsic (Member # 8019) on :

Proceed with caution. My training and experience in the tax field does not accord with the Thibodeaux representations. Tax evasion is illegal, tax avoidance is permissible. Many's the tales of woe for taxpayers led astray by well-intended tax advice, even by expert tax consultants. The safe path through tax laws and writers' write-offs and deductions is a winding one through a labyrinth of complicated IRS rules.

Posted by Dark Warrior (Member # 8822) on :

Good stuff Brad, thanks.

This was my first year but do have a couple of rejection notices, receipts for about a dozen writing books, fees for securing names for two professional writing websites through Godaddy, and ink cartridges.

Since I bought my netbook (as discussed in another thread) specifically for writing I am thinking I can write that off to.

To be sure, instead of the normal online big green tax service I may go to one of their locations and have someone do them in person.

Posted by Brad R Torgersen (Member # 8211) on :

My wife works for H+R Block and she wants me to file my writing expenses. I trust her to know what she's doing. In fact, I sort of don't have a choice -- personally -- because this was the first year I had any income from writing.

Both the Schedule C and the Schedule C-EZ seem fairly straightforward, at this level.

To my mind, if it can be written off legitemately, why not write it off? That's practically like getting the money back, when you get your tax refund.

Of course, if you underpaid your taxes for the year -- my wife and I never do this, we always overpay significantly to avoid potentially owing -- you're S.O.L.

I wish to heck I'd been filing all these years. I've spent a lot of money on my writing, and could have gotten a lot of it back in the form of tax refunds.

Posted by extrinsic (Member # 8019) on :

"Business or Hobby? Answer Has Implications for Deductions" fact sheet by the IRS

http://www.irs.gov/newsroom/article/0,,id=169490,00.html

IRS Publication 535, business expenses, in-depth guidelines and rules for business expenses, write-offs, deductions, business income and losses.

http://www.irs.gov/pub/irs-pdf/p535.pdf

Posted by Brad R Torgersen (Member # 8211) on :

If you're submitting your work to SFWA-level venues, then it's likely you are not a hobbyist.

Hobbyists write fanfic for free on their blogs and other web sites.

Businesses try to make money.

If you're writing to try and make money, then you are not a hobbyist. You are a business.

Again, I trust my wife the tax preparer to know what she is talking about.

Posted by extrinsic (Member # 8019) on :

I have no reason to doubt your wife is a conscientious and informed and legitimate tax expert. I have several reasons to urge caution if following the Thibodeaux representations. The IRS defines business activity, and therefore allowable business deductions, write-offs, and expenses, as activities reasonably likely to generate ongoing business income.

Me, I've done my homework, too. My business motto: Fail to plan; plan to fail. I've successfully defended myself in an IRS audit. What an experience. If it wasn't such a traumatic experience, I'd recommend it to everyone.

Posted by Brad R Torgersen (Member # 8211) on :

Hey, if people don't want to file, they're more than welcome to not file. I suspect 99.9% of everyone here, is not filing for expenses incurred.

But if they can correctly file, and get back some of what was lost, why wouldn't they?

As in all else: when in doubt, do research.

And again, if you think you might owe anyway -- because you didn't take out enough to begin with -- it's a moot exercise.

Posted by extrinsic (Member # 8019) on :

I am not required to file quarterly estimated tax returns, haven't for the ten years I've been engaged in writing-related business activities, which are my primary income source. Nor as a sole proprietor do I have an employer who witholds income taxes from my payroll. I owe on April 15th and have always been on time. If I don't file and pay on deadline, I would be required to file quarterly returns, plus pay fines and penalties and interest for the tardiness of my payment.

[This message has been edited by extrinsic (edited January 12, 2010).]

Posted by Brad R Torgersen (Member # 8211) on :

I never said people had to file quarterly. I never said that at all. Did I say that?

Posted by Teraen (Member # 8612) on :

"Of course, if you underpaid your taxes for the year -- my wife and I never do this, we always overpay significantly to avoid potentially owing -- you're S.O.L."\

Just a thought: to do otherwise is to give the IRS an interest free loan on a yearly basis. If you can estimate your taxes, you might as well put that money in the bank all year and pay what you owe at the end. Your tax bill won't change since it is based off your income, so you might as well get what you can out of it... unless, of course, if you had the money available you'd be tempted to spend it. Tempted so strongly that you gave in and now have no moneys available when the tax bill is due...

Posted by Brad R Torgersen (Member # 8211) on :

More links of interest on this (apparently?) debatable subject.

http://www.bus.lsu.edu/accounting/faculty/lcrumbley/tax_aspects.html

http://www.absolutewrite.com/freelance_writing/tax_tips.htm

http://www.publishlawyer.com/carousel8.htm

http://www.hackman-adams.com/articles/taxes.htm

Posted by extrinsic (Member # 8019) on :

quote:
if you think you might owe anyway -- because you didn't take out enough to begin with

I owe, I owe--because my writing work generates income--so it's off to work I go.

[This message has been edited by extrinsic (edited January 12, 2010).]

Posted by Brad R Torgersen (Member # 8211) on :

Teraen,

The second bit, yes. Call us undisciplined, but it works best for us right now if that extra money stays locked away where we can't make up excuses to get at it. Even during our good years when we swear we're not going to spend the savings, we invariably find an excuse to spend the savings, so it's just more practical for us to have the IRS keep it -- in spite of there being no interest gained -- so that we don't screw ourselves by spending prematurely, then owing, and realizing we've not got enough to cover it.

Only way I see this changing for us is if I can actually sell some novels in the next 5 years and pad our Day Job income enough that we're not always budgeted so close to the vest each month. We began life as a dirt-poor couple, and though our income has increased hugely since we got married 16 years ago, we're still not 'wealthy' in that we don't have a good deal in the bank at any given point in the year.

We're trying to get there, but we're not there yet.

Which is the #1 reason I am so hyper about putting out two or three books this year, at least a dozen more short stories, etc. Having made a little money on the writing for a change, I'd love to start making a lot more. =^)

Posted by extrinsic (Member # 8019) on :

The IRS doesn't debate; they decide, usually in the government's favor.

Posted by Brad R Torgersen (Member # 8211) on :

Is that your way of saying you've been burned?

Posted by Robert Nowall (Member # 2764) on :

My expenses are minimal, my earnings are zero...I don't think I'd be inclined to deduct my expenses without some substantial amount coming into my possession, say, oh, high four figures at least. If my career ever takes off, I might reconsider.

quote:

Hobbyists write fanfic for free on their blogs and other web sites.
Businesses try to make money.

There's no reason you can't do both.

Posted by extrinsic (Member # 8019) on :

Nope. I know the IRS codes that pertain to me and mine kith, kit, and kine, and then some, although I've known many acquaintances that have come down on the wrong side of tax code misunderstandings and misrepresentations.

[This message has been edited by extrinsic (edited January 12, 2010).]

Posted by extrinsic (Member # 8019) on :

quote:
"Hobbyists write fanfic for free on their blogs and other web sites.
Businesses try to make money."
There's no reason you can't do both.

There are legiitmate tax avenues for reporting hobby income and claiming allowable hobby activity expenses. It starts to get complicated, though, and might not seem worth the effort. I have craft hobby income and expenses that I declare on my returns because of the nature of the activity. The income is reported to the IRS by other agencies. I fail on the three years out of five net profit test in that regard, so I can only go the hobby route. Not one dollar more than I legitimately owe.

[This message has been edited by extrinsic (edited January 12, 2010).]

Posted by Brad R Torgersen (Member # 8211) on :

Robert, true, no reason you can't do both, but having actually sold something for a substantial amount, I can say that once you see the dollars roll in for a piece of work, the thought of doing it for free -- especially fanfic, where you own neither the universe nor the characters -- just makes me ask, "Why?"

Me, I spent almost $1K last year on writing expenses, and made roughly half of that. A record year -- both ways -- for me. If I am going to treat this professionally and pursue it professionally, seems to me filing the Schedule C is just common sense.

Others may disagree.

Posted by extrinsic (Member # 8019) on :

When there's writing income for a sole proprietorship, a self-employed writer in the U.S., the way to legitimately report that income is on a Schedule C or C-EZ. Expenses related to that business activity then are allowable business write-offs. The risk is that if there is no demonstrated net profit in three out of five years, that gets a red flag for an IRS audit. If they decide the activity is not a business and instead is a hobby, any retroactive taxes for the five-year period are then due and might include fees, penalties, and interest.

Posted by Dark Warrior (Member # 8822) on :

LOL...you two are having the exact same conversation on two forums. I was like "Hey, wait a second...this looks familiar"

Posted by Brad R Torgersen (Member # 8211) on :

I think I'm going to quit both of them, for now.

Perhaps taxes -- like religion -- is one of those issues upon which everyone is liable to have differences of opinion.

I'm following guidance from people I trust to know what they're talking about.

We'll see what happens.

Good Lord, I certainly hope I am not still showing a net loss in five years! Although it seems I read about an exception that you can file for, in the case of unusual business models that take an extra long time to put into the black.

Later...

Posted by Dark Warrior (Member # 8822) on :

THanks again for the info Brad...definitely something I am going to look into.

Posted by extrinsic (Member # 8019) on :

My issue and the way my luck runs means the only person I can rely on is me, too many acquaintances that followed expert advice and were burned by it. I'm of the CYA and better to ask permission than beg foregiveness persuasion. Life made me that way.

The audit I got called in for wasn't flagged by the IRS. It was flagged by a disgruntled Bureau of Alcohol, Tobacco, and Firearms agent I was involved with in another, earlier business activity, and not thing one I could do about that malfeasance of office beyond winning my audit defense.

I did anonymously report him to a whistleblower hotline for his clumsy attempt at soliciting a bribe.

[This message has been edited by extrinsic (edited January 12, 2010).]

Posted by Brad R Torgersen (Member # 8211) on :

Just got this from DWS:

=========================================================
Brad,

You get past the hobby issue if you save your rejections and submissions records. That’s the key. If you are making a “concerted effort” to make money with your writing, it doesn’t matter if you don’t. In fact, early on in writer’s careers, the best check they get every year is the refund check from the IRS because of their writing deductions.

Save all rejections and submission records. If someone from the IRS draws a short straw and has to check with you, all you do is pull out the rejections and they just nod. But that won’t happen. Just be clear and keep records in notebooks and travel journals. And don’t forget your miles to and from to the post office. You can take those as well.

Cheers
Dean
=========================================================

Posted by extrinsic (Member # 8019) on :

quote:
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.
In order to make this determination, taxpayers should consider the following factors:
Does the time and effort put into the activity indicate an intention to make a profit?
Does the taxpayer depend on income from the activity?
If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
Has the taxpayer changed methods of operation to improve profitability?
Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
Has the taxpayer made a profit in similar activities in the past?
Does the activity make a profit in some years?
Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?
The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year. Excerpt from IRS Business or Hobby fact sheet.

Respectfully, Dean's advice is incomplete.

Posted by Robert Nowall (Member # 2764) on :

Ultimately, I don't think the deduction I would take would be worth the time and effort I would have to put into it to figure it out---or possibly defend it to the authorities---so I'd just as soon not bother. It'd be like deducting my gambling losses (about a hundred dollars in lottery tickets every year) up against my winnings (usually five or six dollars).

Again, I'll emphasize that my attitude would change if I did start picking up some serious coin.