Business owners can take deductions that lower their tax liability, and the amount of deductions can even occasionally exceed the business's income. However, not every writer can call his work a business. If an unpublished writer can't prove a strong profit motive, he'll only be able to deduct the expenses under the IRS rules for hobbies, which offer greater restrictions into how much may be subtracted.
Hobby vs. Business
Before you can figure out what deductions you can take, determine whether your writing constitutes a hobby or a business. As a general rule, you're running a business if you have a reasonable expectation of earning a profit. If you're writing for stress relief, for fun or as a hobby, you probably don't have a strong enough profit motive to be considered a business. When evaluating your profit motive, the IRS may consider the following:
- Whether you have the skills and knowledge to make your writing a successful business.
- Whether you've been adjusting your operations in an attempt to become profitable, such as trying your hand at non-fiction instead of fiction.
- If you've made a profit from similar activities in the past.
- Whether or not you put enough time and effort into the activity to make it profitable.
The IRS considers an activity to be a business if it made a profit for three out of the last five tax years. According to BizFilings, that means a start-up business could potentially begin with two unprofitable years but still consider itself a business. It also means that you still can be considered a business if you have a few bad years after a few good ones. However, if you're completely unpublished and have no revenue to speak of, it may be a hard sell to pass your writing career off as a business.
Tax Deductions for a Business
If you're writing career qualifies as a business, you can deduct all necessary and ordinary costs that you incur as part of your operations. For a writer, common tax deductions include:
- Office supplies like pens, pencils, papers and staplers.
- Website registration and hosting fees.
- Research expenses and software programs.
- Travel expenses to meet with clients.
- Legal and professional fees.
- Rent, utilities and insurance if you qualify for the home office deduction.
If you're a business, deductions can exceed your revenues. Business revenues and deductions are reported on Schedule C, which flows through to your main 1040 tax form. If you have a net loss, this offsets your income from other sources, like wages from a job and interest income. Be sure to keep copies of expense receipts, invoices or billing statements to justify your expenses.
If you've determined that your writing better fits the description of a hobby, you still can take deductions. However, your deductions -- formally known as hobby expenses -- can't exceed your income from your hobby. Also, hobby expenses are considered to be a miscellaneous deduction, which means that you must itemize rather than take the standard deduction. Miscellaneous deductions only can be deducted once they exceed two percent of your adjusted gross income.
You can list the same expenses you would have taken as business deductions as hobby expenses, with the exception of the home office deduction. List hobby expenses on Schedule A in the Other Expenses line under the Miscellaneous Deductions subhead.
- Internal Revenue Service. "Five Things to Remember about Hobby Income and Expenses." Accessed Feb. 2, 2020.
- Internal Revenue Service. "IRC § 183: Activities Not Engaged in For Profit (ATG)," Page 3. Accessed Feb. 2, 2020.
- United States Tax Court. "Main v. Comm’r (T.C. Memo. 2016-127, appeal docketed No. 17-71070 (9th Cir. Apr. 13, 2017))," Page 5. Accessed Feb. 2, 2020.
- United States Tax Court. "URVE V. MOYER, INCOMPETENT, CALVIN L. MOYER, NEXT FRIEND, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent, T.C. Memo. 2016-236 UNITED STATES TAX COURT, December 27, 2016, Pages 12-14. Accessed Feb. 2, 2020.
- Internal Revenue Service. "Hobby or Business? IRS Offers Tips to Decide." Accessed Feb. 2, 2020.
- Internal Revenue Service. "IRC § 183: Activities Not Engaged in For Profit (ATG)," Pages 22-23. Accessed Feb. 2, 2020.
- Internal Revenue Service. "IRC § 183: Activities Not Engaged in For Profit (ATG)," Pages 1-2. Accessed Feb. 2, 2020.
- Internal Revenue Service. "IRC § 183: Activities Not Engaged in For Profit (ATG)," Page 11. Accessed Feb. 2, 2020.
- Internal Revenue Service. "Tips for taxpayers who make money from a hobby." Accessed Feb. 2, 2020.
- Internal Revenue Service. "Business or Hobby? Answer Has Implications for Deductions," Page 30. Accessed Feb 2. 2020.
- Internal Revenue Service. "Is Your Hobby a For-Profit Endeavor?" Page 30. Accessed Feb. 2, 2020.
- Internal Revenue Service. "How do you distinguish between a business and a hobby?" Accessed Feb. 2, 2020.
- Electronic Code of Federal Regulations. "§1.183-2: Activity not engaged in for profit defined." Accessed April 8, 2020.
Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from San Diego State University.