Being an author for three years and an accounting clerk/bookkeeper for a CPA firm, Clifton R. Rogers & Associates PC, for at least three times that amount of time, I have developed my skills and interest in taxation.
Despite the belief of the IRS, there is no cookie cutter formula that applies to every single person equally; however the foundation of the tax code applies regardless of your situation.
I belong to various groups on different social media sites where authors gather to get information. In these groups in the month of February through April, I have constantly seen authors ask the same question, “What can authors deduct on taxes?” Well my two cents are just that, two cents, and I tend to post them frequently, but one day my comments were read, received and helped a fellow author. From that encounter, I was granted the opportunity to write this article for you.
So here goes. Not trying to be too technical or lengthy, but in short, if you are receiving a royalty check from a publisher (one who collects all the income and absorbs all the expenses and pays you, under your social security number instead of a EIN number) you can complete a Schedule E – Supplemental Income and Loss. However if you are doing business as a DBA or sole proprietor and have an EIN number that you are accepting payments under you qualify to complete a Schedule C – Profit and Loss from Business. Be aware that self-employment tax will now come into play.
By definition from the IRS, you may complete a Schedule C (Form 1040) to report income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business.
Note: The IRS will consider your company a hobby if you have reported a loss for three of the last five years in business. Being determined a hobby will void any deduction of expenses you may wish to claim associated with the business. If you have not been doing business for five years, I would suggest you complete Form 5213 – Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit. This form will extend the time for determination by the IRS until the end of the 4th year of which your company has engaged in activity.
Speaking of deduction of expenses, the IRS defines and considers a deductible business expense to be, A business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business.
Some examples of deductible expenses are: Note: Keep all associated receipts for these deductions with your completed tax return for at least ten years.
- Professional Organizations dues (related to writing), not club dues
- Home business deductions
- The area in your house that is designated for publishing/writing business only
- Utility cost in relation to the percentage of the home office
- Publishing cost
- Editing including software
- Cover Design including software
- Flyers, Postcards, Posters, Bookmarks
- Purchase of books
- Website creation and maintenance fee
- Copyright fees (capitalization and amortization applies)
- Travel and transportation to book related events
- Vendor Fees
- Book Tours
- Press Releases
- Electronic Office Equipment (must be depreciated over 5 or 7 years)
There are a few more deductions that require more detailed explanations and requirements. To take the time to speak to a tax professional is always a recommended method of resolution.
I will take this time to make two very important suggestions. One, as a business (writing is a business) you should have a reliable and accurate accounting software. I recommend a version of Quickbooks. Lastly, I would also recommend that as a business and to reduce your personal liability that an author who is “doing business as” should incorporate as an LLC – Limited Liability Corporation, with an S-Corp designation. S-Corp status is important so that you can receive the benefit and allow any profit/loss to pass-through to your personal tax return from your company. It creates a single tax liability as opposed to paying corporate taxes and individual taxes (double taxation).
I hope this answers some of your questions. Stay legal and happy writing.
Michele Tooles a resident of Chicago and Certified Quickbooks Advisor is the Vice President of Prestige Tax LLC, a small bookkeeping and tax firm that specializes in Quickbooks Set-up, Training, Maintenance and Repair. If you are interested in her services, email her at firstname.lastname@example.org
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