In this article, I’m going to focus on assisting writers get every possible tax benefit just from writing. Becoming a very successful writer can undoubtedly be expensive, don’t think simply because you don’t really make a profit you cannot write off your expenses.
Well, many have always asked whether writing expenses are actually deductible. Please note that the key to deductibility is whether you are actually carrying on a business or just a hobby. All business expenses are deductible against all your other non-writing income, but keep in mind that hobby costs are not. In case your writing activities have you in the red, just make sure that they pay for you. Deduct all of them against your day job.
Since running a business is actually the key to deducting all your writing expenses, the following are tips on how to prove that you are really operating a business.
Since every individual is supposed to report virtually all income on his or her return getting paid for a particular activity is not, in itself, evidence that the activity in question is a business you are doing with the aim of making a profit. For you to deduct expenses in excess of the income related to all those expenses, you have to be able to clearly demonstrate that you are actually conducting a business. The following are some of the guidelines the IRS (Internal Revenue Service) uses to make that decision.
1. You carry on the activity in a business-like manner.
Always keep good records. Just make sure you open a completely separate checking account specifically for your writing activities. Getting a separate credit card is also advisable. In other words, keep your writing expenses distinct and separate from all your other expenses.
2. The effort and the time you put into the activity clearly indicate you expect to make it profitable.
Make sure you keep a calendar. If you maintain a consistent schedule for your writing, ensure that you put it in your calendar. And never forget the time devoted to signings, book fairs and all the other promotional activities.
3. Your losses are due to circumstances beyond your control, or they are normal start-up costs.
What does this really mean? You cannot deduct an item that you gladly spent? Not at all! As a matter of fact, in most businesses, all the expenses are normally controllable to a certain extent. It is actually the income that is totally unpredictable. You have to prove that the expenses are ordinary and absolutely necessary to produce the amount of income you seek. Losses in a number of businesses are because of circumstances beyond control.
4. You modify the methods of operation to improve profitability.
Usually, writers write and then try to sell. There are those who get advances, but most actually don't. Always put the emphasis right here on your marketing. If you realize that sending out query letters to the top book publishers does not work, then change your plan. Just make sure you send out queries to many more different houses. Don’t forget to include small press publishers. Also try to get a reliable agent. Investigate self-publishing as a substitute. Investigate freelancing.
5. You succeeded in making a profit in similar activities in the past.
One major thing that actually helps your cause is that you are lucrative in one of 3 years. So, if you really have one good year of getting paid for copyrighting, or selling a book etc., this can go a long way in supporting that your writing activities are indeed a business.
6. You, or your advisors, have the knowledge needed to carry on the activity as a business.
You actually plan to build a strong fan base over time using your published works. Well, I’m sure this is not a tough business plan to comprehend. If you have an agent, a tax accountant, or other such professional consultants, then you are undoubtedly golden. If not, this one should not be a stumbling block.
8. You can expect to make a profit from the appreciation of assets used in your writing.
Unless you become super famous and actually can sell all your original manuscripts for a reasonable amount of money, or your typewriter is a highly valued antique, this is certainly not going to apply to writing.
You can be sure that the above guidelines are some of those the IRS (Internal Revenue Service) considers in finally determining whether you are engaging in a hobby or carrying on a business. But if you really want a better understanding, it is wise to find a tax professional. But if you know all the points and actually satisfy as many as possible, then you are heavily stacking the deck in your favor. But always remember, these all these rules are judgmental and are only applied subjectively. The Internal Revenue Service says that they take all these factors into consideration; no one factor is conclusive. The more of them you actually have nailed down, the better your situation.
At Kenneth Taylor Accounting Services, we believe that writing is extremely beneficial and we help writer know how they can actually get every possible tax benefit. Based in Coalgate, Oklahoma, we have helped so many writer get what lawfully belongs to them. Don’t be left out, come and let us help you turn you hobby into a business that can attract several tax benefits. Contact us today and our able tax preparers and accountants will walk you though and help you better understand all the guidelines.
Kenneth Taylor Accounting Services