Hi SEers! Welcome to another Mae Day on Story Empire. Recently, a post I made about being a disciplined writer, produced a few comments about whether writing was a hobby or a business. The IRS clearly has an opinion, but much of how the government views your writing is also determined by how you view it.
I’m going to draw on a Story Empire post I wrote in 2017. We have many new blog followers since then, and I believe rehashing the points may be a benefit, especially with tax deadlines looming.
Most of us go into writing hoping to make a profit. Sure, it’s our dream to have published works “out there,” but it would also be nice to see some success along with the realization of that dream. This is where things can get tricky.
There’s an old saying “to make money you have to spend money.” For writers that means marketing, something that usually comes with cost. It would be nice to write off those expenses come tax time, but what happens when costs outweigh profit? For most of us, that’s definitely going to be the case for the first few years. Possibly longer. So how do you keep Uncle Sam from seeing your efforts as a hobby.
I’m not an expert, but here are a few things you can do:
Detailed Record Keeping
This may seem obvious, but the more detailed records you can produce (in the event of a dreaded audit) the more favorable the outcome is likely to be. Keep receipts and make notations on each. In addition, use a spreadsheet to track and itemize by category. I use headings such as Advertising, Supplies, Fees, Contract Labor and a few others. Know what you can deduct and what you can’t.
In addition to expenses, itemize your earnings and the sources for each. As a hybrid author, I earn royalties on my indie titles as well as paychecks from my publisher. I break everything out separately in a spreadsheet.
Open a Separate Business CheckingAccount
I have one that is used strictly for author expenses. By the same token, the royalties I earn don’t get mingled in with my regular household account. Income goes into my business account where it is easy to track, and the bottom line is always visible. It’s also easy to hook your account to PayPal for additional record keeping and a convenient means of paying outside vendors.
Use a Separate Credit Card
I’m a PayPal fan, but there are times when I need to pay something by card due to the vendor. In that case, I have a major credit card that is used solely for my author expenses. And like a bank account, it can be hooked to PayPal.
A Tax ID Number
If you do book signings where you sell physical copies, and your state charges sales tax, you need to sign up for a Tax ID Number. This is something you can usually do online. In Pennsylvania, I’m even able to register for alerts reminding me when filing is due. This could be quarterly or semi-annually depending on your state, but don’t forget to file. Even if you go a quarter without physical book sales, you still need to report your earnings (or lack thereof).
Credit Card Readers
These are handy little gadgets that turn your smart phone into a credit card reader. The one I use is from PayPal and comes in handy at book signings, offering chip and swipe or chip and tap. Funds are deposited directly into my PayPal account and customers receive an electronic receipt via email. I’m even able to calculate in sales tax.
All of this may seem like a lot, but once you start publishing, earning royalties, and having the burden of expenses, you’ve entered the business phase of writing. Until that point, you may view your writing as a hobby. Uncle Sam will too if you don’t turn a profit in at least three of five consecutive years. That’s why it’s so critical to keep detailed records.
For more information on the difference between how the IRS views hobby vs. business, see the IRS website HERE.
Wouldn’t it be great if we could just create, write, and enjoy? Sadly, everything has a practical side. Even writing. So, is your writing a business or a hobby? Let’s get some discussion going in the comments.
Ready, Set, Go!