Tax Workshop presented by Ellen Spain
Your first step is to determine whether or not your writing career can be called a trade or business. If you
write without pursuit of getting published and making an income, you’re not in the trade or business of
writing for profit but have a hobby.
The Internal Revenue Code of 1986 provides, "gross income to mean all income from whatever source derived,
including (but not limited to) . . . royalties". I.R.C. § 61(a)(6). "Writer" is defined in the Internal Revenue
Code (in the section exempting free-lance authors from the requirement of capitalizing expenses associated with
producing property): The term "writer" means any individual if the personal efforts of such individual create
(or may reasonably be expected to create) a literary manuscript . . . I.R.C. § 263A(h)(3)(A). When an author
writes a book, the literary ideas embodied in the manuscript are property. See Lewis v. Rothensies, 61 F.Supp.
862 (E.D. Pa. 1944), affd. per curiam 150 F.2d 959 (3d Cir. 1945). When the author sells it in exchange for
royalties, her interest in the contract by which the royalties are paid is also property. See Reece v.Commissioner
of Internal Revenue, 24 T.C. 187 (1955), affd. 233 F.2d 30 (1st Cir. 1956). Royalties paid on the commercial
exploitation of a book are taxable to its author. See Miedaner v. Commissioner, 81 T.C. 272 (1983). "Taxable
income" means gross income minus the deductions allowed by the Internal Revenue Code. I.R.C. § 63(a)
version IRS 1986. If you receive any amount of income from your writing, report it on a Schedule C form.
PROFIT MOTIVE Factors used in the IRS determining your profit motive:
Manner in which you operate. Conduct your writing activity in a "businesslike manner", keep accurate records,
and operate yourwriting business in ways similar to profitable businesses.. Expertise of taxpayer or his
advisors. Time and effort expended. Expectation that assets used in the business will appreciate in value.
Success of taxpayer in carrying on other similar or dissimilar activities. Taxpayers' history of income or losses
with respect to the activity. See Churchman v. Commissioner, 68 T.C. 696 (1977), a case involving a struggling
artist with a ten year history of losses. Amount of occasional profits. Financial status of the taxpayer. And
Elements of personal pleasure or recreation. see. Jackson v. Commissioner, 59 T.C. 312 (1972).
RECORD KEEPING The key to record keeping is to do it on a regular basis. Don’t let it pile up. I use
a credit card to track my expenses and always obtain receipts. Here’s how I do my Quicken.. I set up a
category titled “Writing Expenses” and include the following subcategories: Conference Fees; Contest Fees;
Education/Seminars; Professional Dues; Subscriptions; Gifts/Donations; Meals & Entertainment;
Office Equipment; Office Supplies; Postage; Website/Business Cards; Advertising & book Promo;
Research; Books related to writing and to the specific research for a story; Hotel; Meals; Airfare; auto
mileage; Misc. expenses. Post your expenses where they make sense to you.
*Keep accurate records, in a neat, orderly manner. *Do not write off anything that isn’t directly related to
your writing. If writing is mainly for your enjoyment, don’t deduct your writing expenses. That is not saying
that you can’t enjoy writing but it must be profit motivated. *Keep a log to document how much time you
spend writing. *Do NOT throw away rejection letters or unpublished manuscripts as your work shows a profit
motive. * Operate your writing business like a traditional small business.