The Cost of Being a Writer

While at the Book Summit in Toronto two weeks ago, one of my friends and fellow writers reminded me to keep all the receipts for my expenses. In fact, she kept reminding our group to retain even our food receipts. We all joked about it and had a good laugh about being starving writers. However, claiming writing expenses is no fiction.

If you’re like most writers, you’re probably beside yourself wondering what you can deduct against your writing income when it comes to taxes. What does the Internal Revenue Service (for USA) or the Canadian Revenue Agency (for Canadians) allow? What deductions send up a red flag? Will you be audited?

How to Tell if Your Writing is an Occupation or a Hobby

First, let’s define your writing occupation. The IRS will apply “hobby-loss” rules according to how serious you are as a writer. If writing is merely a hobby or an occasional income-producing venture, then you can deduct your expenses only to the extent of your income. In other words, you can’t take any losses against other income. For example, if your hobby writing generates $1,500 for the year and your expenses amount to $1,900, you will not enjoy a $400 loss against other income. You may deduct only $1,500 in expenses, making your net taxable income zero from writing sources.

Intent becomes a key factor in determining your status. Are you a full-time writer, earning your entire income from this source? Or do you have a 9-to-5 job and write an article here and there for extra income? Perhaps you’re currently living on your savings while writing the Great American Novel. If you are working toward making a living from writing, even if you have another job on which you’re subsisting for the time being, then you can declare your writing an occupation by filing a Schedule C and take deductions, even if the result is a business loss. The loss applies to all other income you receive during the year, reducing your taxable income and therefore your tax liability.

The IRS leaves it up to each individual to make an honest determination of whether his writing activities are a hobby or a business. You make the decision as you file your tax return.

But the IRS gets a big scowl on its face when it sees five or more years of losses from a business activity. It’s inclined to audit and disallow the losses if it feels an individual is attempting to write off her hobby. That could be rather expensive, because the IRS will go back three years and recalculate your tax liability—including interest—without the losses. In some cases it may add penalties.

Here are some ways to prove business intent so you may enjoy losses against other income:

1. Keep business records, either on an accounting software program or on spreadsheets.
2. Maintain a separate checking account for transactions related to writing. (This not only proves business intent, but will make it easier to track income and expenses.)
3. Attend classes and conferences to improve your skills.
4. Advertise, network, seek new clients and keep a journal of these activities.
5. If you plan to deduct vehicle expenses, keep a mileage log.
6. Keep a phone log of business-related calls.
7. Obtain any required licenses and insurance.
8. Give your business a name.
9. Chart future projections and plans to turn the activity into a profitable enterprise.

By following the above guidelines, you’ll demonstrate a profit motive and be more likely to convince an auditor you’re serious about the business of writing.

Remember, every case is different in the US and Canada therefore, you have to consult with your accountant whether you can claim certain expenses or are entitled to every deduction. I would encourage you to seek professional advice to discuss your individual situation and how best to apply the laws to your advantage.