by Fred A. Aiken
The two-minute warning in football signals that the time to make the winning play is quickly running out. Consider this your Two-Minute Warning for tax purposes. If you want to deduct your writing expenses from your 2015 income, you must act now to ensure you have the necessary records to be able to take the deduction.
Writing is a business. To be considered as a writer, one simply declares oneself to be a writer by filling out Schedule C on their tax return. By self-declaration, a writer establishes herself/himself as a person operating a part-time, sole-proprietorship engaged in the business of writing for profit. A writer must materially participate in her/his business and all of the money invested in the business must be “at risk.” A writing business operates on the cash basis (income as received and expenses when paid) and carries no inventory.
According to Harlan Ellison, “Anybody can become a writer, but the trick is to STAY a writer.” The Internal Revenue Service could audit your return. When they do, they are looking to see whether there is more evidence that you are actively engaged in the business of writing than there is evidence that you are not (preponderance of evidence rule). If your income exceeds your expenses, then you have little to worry about; even hobbyists can deduct all expenses to the extent of their income. Only writers actively engaged in the business of writing are entitled to the privilege of deducting their excess business losses from their other income.
Most businesses have common characteristics. They keep detailed accounting records. The business owner has a good knowledge of the business sector in which the business operates. The business owner belongs to professional associations such as SouthWest Writers (SWW). And, the business owner has a written business plan on how her/his business will operate.
As a professional writer, use these final two months of 2015 to gather documentation to substantiate your writing income and expenses. Income is any money that is generated by your writing activity, including contest prizes. Common expenses include dues to professional organizations such as SWW, paper, pens/pencils, printer ink, telephone expenses for interviews, postage, professional development activities (including workshops, conferences, classes), reference books, mileage for business purposes, etc. If a business purpose can be established, then the expense may be deducted. The list is endless. It is up to you to establish the business purpose of the deduction. I personally avoid taking any deductions for a home office and will urge extreme caution in taking deductions for “research travel.”
A writer prepares manuscripts and sends those manuscripts to persons who are in a position to pay the writer for the right to publish the manuscript. Publishing is a different business from writing. If you self-publish, make sure that you separate your writing expenses from your publishing expenses and file separate Schedule C forms for each business.
Smile as you file your 2015 tax return. Many happy deductions to you in 2015 and future years.
Fred A. Aiken has an MBA from Cleveland State University and has taken graduate level coursework on Federal Income Tax. A member of SouthWest Writers since 1996, he writes spiritual/inspirational and non-fiction articles as well as mystery and science fiction/fantasy stories and novels.
This article was originally published in the November 2009 issue of SouthWest Sage and is reprinted here by permission of the author.
Image “Tax Time” courtesy of hywards / PublicDomainPictures.net