How Aspiring Authors Can Leverage Tax Deductions to Fuel Their Writing Dreams
The allure of becoming a published author is undeniable. But for Richard Strasser, a recently retired copyright lawyer turned novelist, the journey wasn't just about crafting captivating stories. It was about navigating the often-murky waters of taxes. After self-publishing his first steamy romance novel under a pen name, Strasser, like many aspiring authors, questioned what writing-related expenses he could deduct.
The key distinction lies in whether your writing endeavors constitute a business or a hobby. For Strasser, demonstrating a "profit motive" is crucial. While royalties will be taxed regardless, claiming business expenses can significantly reduce your overall tax burden. However, the 2017 tax reform law temporarily restricts hobbyists from deducting expenses through 2025.
The IRS employs a nine-factor test to determine if your writing is a business. Here are some key considerations:
Businesslike Operation: A well-defined business plan and separate financial records for your writing ventures demonstrate a serious approach.
Profit Motive: Demonstrate your commitment to profitability. Strasser's investment in a romance novel writing workshop strengthens his case.
Time Commitment: Dedicate substantial time to your writing. Spending a few hours a week writing suggests a hobby, not a business.
For most aspiring authors, operating as a sole proprietor is the norm. This means your writing income and related deductions are reported on Schedule C of your individual tax return. However, income exceeding a certain threshold triggers self-employment taxes, a factor not applicable to hobbies.
A string of losses doesn't automatically disqualify you. In a landmark 2019 case, a lawyer-turned-documentary filmmaker with six years of losses was allowed deductions due to her evident profit motive and being in the expected startup phase.
However, a 2016 case involving a lawyer writing travel guides highlights the importance of genuine business activity. The taxpayer, who wrote off significant international travel expenses, hadn't yet offered the guides for public sale. The court denied the deductions, deeming it a hobby.
For aspiring novelists, legitimate deductions include copyright registration fees and advertising expenses. Workshop costs like Strasser's writing course also qualify.
While Strasser's research trip to Montana for his novel sequels holds promise, meticulous record-keeping is essential. Only expenses directly related to writing, with clear dates and purposes, can be deducted. Spousal travel expenses are non-deductible.
Don't fall into the trap of using tax breaks to justify unnecessary spending. Local coffee shop visits or meals at home aren't deductible business expenses. While the endless cups of coffee may fuel your creativity, they remain a personal expense.
Understanding the tax implications of your writing journey empowers you to make informed decisions. By demonstrating a profit motive, keeping detailed records, and focusing on legitimate business expenses, you can leverage the tax system to fuel your passion and navigate the path toward literary success.
