by Jon Rogers, Lighthouse’s Accountant
For three years, I’ve been married to a writer, but I’ve been doing her taxes for longer than that (an ill-conceived wooing tactic). As a creative person, my wife believes in some fairly creative tax positions. Among the questions she asked me, before storming out of a coffee shop where I’d met her to prepare one of her 1040-EZ forms:
[caption id="attachment_5693" align="alignright" width="300"]
Tax lessons for the word-driven and number-challenged.[/caption]
Why can’t I deduct all the books I bought? What about this jumbo box of paperclips? Can I write off tuition for classes I took? What about classes I almost took? Can I deduct my research trip to Arizona? Do I seriously have to pay taxes on this 1099 work? This is #@%! Why can’t you get me a bigger refund? I thought you were supposed to be good at numbers. I’m outta here.
The sad fact is taxes are basically just a series of restraints and there isn’t always a lot of wiggle room. But there are ways that writers (and artists of other kinds) can turn their writing costs into deductible business expenses.
The IRS follows a list of nine guidelines in considering whether an endeavor is a hobby or business, and while every person’s tax situation is unique, some writers might benefit from operating their writing like a business—if not this year, than in the future.
These nine so-called “hobby loss rules” determine whether or not your writing can be considered a business by the IRS. Ask yourself these questions:
- Did you keep accurate records? Do you keep any income separate from your personal finances?
- Are you an expert in this business? Have you consulted with other experts about the viability of your business?
- Have you worked consistently and materially on your business?
- Do you intend to make money through asset appreciation?
- Have you been successful in a business like this before?
- Have you made money doing this?
- Are you consistently making money?
- Are you offsetting income from another activity?
- If the activity is chiefly for personal pleasure, it’s likely to be considered a hobby.
And here is when taxes start to resemble writing—there is a lot of gray area in deciding whether your writing fits the above criteria. One writer’s responses will differ from another’s, and differ from year to year. And while your writing doesn't need to meet all nine criteria, it should meet most if you want to file as a business (the first three are particularly important for a beginning writer to consider).
I learned more since those days of wooing, and I thought I’d share the wealth with others. Learn more about the tax implications of writing at the February 8 Writer’s Buzz: Taxes for Writers. Two CPA’s (they are doing this pro bono!) will walk you through a couple of different tax scenarios, and discuss home office rules and best practices for recordkeeping.
