When it comes to writers and taxes, the million-dollar question is whether your writing is a business. That’s the take of Diane Kelly, who knows the writing business from both sides of the desk as a CPA and attorney, and also as the author of the mystery novel, Death, Taxes and a French Manicure, scheduled for release this November.
“If your activity is a business, you are entitled to take losses no matter how many years in a row you have a loss,” she told her listeners in an “Everything You Never Wanted to Know about Taxes” workshop at the recent DFW Writers Conference. “If your writing is a hobby, you can deduct expenses only up to the amount of income and cannot claim a loss. Allowable hobby expenses are deducted as itemized deductions on Schedule A (of Form 1040) and are subject to a two percent of adjusted gross income limit.”
To help writers make a decision about whether they’re conducting a business or practicing a hobby, Diane provided the following list of factors the
- Do you operate in a “business-like” manner?
- Do the time and effort you put into your activity indicate an intent to make money?
- Do you depend on the income from your activity for your livelihood?
- Are your losses due to circumstances beyond your control/normal during the start-up phase?
- Do you change your methods of operation in an attempt to improve profitability?
- Do you have the knowledge needed to carry on a successful business?
- Were you successful in making a profit in similar activities in the past?
- Does your activity make a profit in some years, and how much profit does it make?
- Do you expect to make a profit from the appreciation of the assets used in the activity?
She then took the workshop through a tour of
tax form 1040 and its major business-related schedules. The major schedule for any self-employed person is Schedule C, “Profit or Loss from Business,” which has a specific code, 711510 for businesses described as “independent artists, writers and performers.” Income is reported on Part I and expenses in Part II. Among Diane’s suggestions were to keep good records for car expenses, which she characterized as a common audit item. Use line 10 (commissions and fees) to deduct agent fees, and line 27 (other expenses) for dues to writing groups, conference and contest fees and class fees (although courses at some institutions may qualify for tax credits – more advantageous than deductions). U.S.
And deductions for manicures she got to research her Romance Writers of America award-winning book? Unfortunately not. Grooming, she said, is always considered a personal, rather than business expense. Even so, when she does book signings, you can bet she’ll flaunt appropriately-lacquered nails!
For more about Diane, writing, or to sign up for her quarterly newsletter of tax tips, see www.dianekelly.com/
(As, I’ll admit, a former
IRS employee, the deduction that made the rounds of our office was an exotic dancer’s expense for breast implants. What’s your best deduction? Or your worst?)