Writing for Profit or Writing for art, does it matter? #NanoWriMo

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The month of November is coming to an end and thousands of novels are coming close to their completion (as a first draft, anyway). Some of those novels will end up in the hands of literary agents and publishers and some will end up being self-published. Somewhere in the world, a writer will look in the mirror and say (as I did last year), that I CAN be an author…and so they will become one.

Probably the most important question asked of any author is “Why do you write?” The answers to this question vary from author to author, from project to project and from interview to interview and perhaps the greatest debate about the answers to this question is “Do you write for the money?”

This is precisely what the IRS wants to know about your writing activity and the answer can have a bigger impact on your tax return than you may know.

When I enrolled in the HR Block tax course, I was surprised to learn that there are a few ways writers can claim their writing earnings and expenses.

  1. Writing as a business
  2. Writing as a “Passive Activity”
  3. Writing as a Hobby

Writing as a Business

This is probably the most common method used for claiming writing income and expenses but, it’s not always the best way and it’s not always necessary. If you claim your writing activity as a business, you will file Schedule C: Profit and Loss from a Business, along with your regular 1040 return.

You will be allowed to claim expenses against your Writing proceeds and if you have a loss, the loss is deductible against other types of income (such as wages or interest). In the case of a business, however, you will be required to pay Self Employment Tax, which covers the cost of Social Security and Medicare for Self-Employed individuals.

Writing as Passive Income

Royalties from writing can also be claimed by filing a Schedule E: Passive Income Activity. Writers who file a Schedule E, will not be required to pay Self-Employment tax but Passive Loss from writing is only deductible against other Passive Income. So, a loss from writing as a Passive Activity will not reduce income from wages, interest or other income (but may reduce income from a rental or other Passive Activity).

Hobby Income

If writing is purely a Hobby and the writer has no expenses, whatsoever, to claim against the profit from writing, the income may be entered directly on Line 21 of form 1040: “Other Income”.  The full amount will be taxable and may result in a tax liability for the author (if the income is large enough to produce more taxes owed than was overpaid from other sources of withholding).

****Although losses from Hobby Income can be claimed on Schedule A: Itemized Deductions, this is often not the best route because the expenses would have to be more than the standard deduction for your filing status (along wiht other itemized deductions, of course).

How to tell if you’re writing for Business or Passive Activity?

The IRS defines a business as an activity “that which occupies the time, attention and labor of men for the purpose of livelihood or profit.” So, we see that the most important concept that separates writing as a business from writing as a Passive Activity is intent. Obviously, if you are a career author and you make your entire living from being an author, you are writing as a business.

However, if you are a self-published author, an independent author or you have other (more significant) sources of income, it may be a little more difficult to determine if you should file as a business or file as a Passive Activity. The IRS gives the following guidelines for determining whether an activity qualifies as a business or a passive activity (the full article can be read here)

In order to make this determination, taxpayers should consider the following factors:

  • Does the time and effort put into the activity indicate an intention to make a profit?
  • Does the taxpayer depend on income from the activity?
  • If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
  • Has the taxpayer changed methods of operation to improve profitability?
  • Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
  • Has the taxpayer made a profit in similar activities in the past?
  • Does the activity make a profit in some years?
  • Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

***The IRS notes that if a business activity shows a loss for 3 out of 5 years, it is (by defult) Passive Income (and vica versa).

In the end…

I wrote this, to educate Authors of their options but in the end, each situation is unique and it is important to have a Tax Professional look at your personal tax situation to determine whether your writing activity should be claimed as Business Income or as a Passive Activity.

I would also like to urge you not to attempt to file your own taxes, if you’re still not sure about what is your best option (or what counts as expenses). The great thing about the age that we live in is that you never have to leave your house to get quality tax preparation by a Tax Professional.

If you would like me (a fellow author), to prepare your tax return this year, all you have to do is email me your tax documents at my HR Block email: ashley.willis@tax.hrblock.com. I can prepare your tax return and email your return to you for review. Once you give me the okay, I can electronically file your return, from the HR Block office, and you never even have to move out of your favorite writing chair. 😀

Either way, I am always open to help fellow writers and answer questions about all of this. My work email is: ashley.willis@tax.hrblock.com and my personal email is acwilliswriting@gmail.com. Feel free to email me if you have a question which applies to your particular situation.

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#Nanowrimo, @HRBlock, and #Life…OH MY!!!!

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It’s that time of the year, again…

As the wheel of the year turns and the Cailleach rises to bring winter storms, there is a great awakening of creative spirit. Nanowrimo falls on the first day of the Celtic New Year…the perfect time for resolutions and new beginnings.

I have looked forward to this day, since December 1, 2013, when last year’s Nano was over. I tried Camp Nanowrimo but it wasn’t quite the same and so I resigned to wait…and wait I did.

Now, it’s here and while I’m as nervously excited as I thought I would be, I’m also starting that I might be a little bit crazy for going at it this year.

Last year, I won Nanowrimo…

…but since then, I’ve kind of been a lazy author. I suppose lazy isn’t the best word…I’ve been increasingly busy with other things…

Sometimes life just rises up and steals away the time and creative energy of an author. I suppose that’s the greatest battle that we fight. We live in this world between worlds and sometimes one of them (the “real world” or “the alternate”) reaches out and consumes us.

Last year, I was busy; mostly with my kids (now ages 5, 4 and 4)…But also with the daily ins and outs of life, being a housewife and the pending holidays. This year, I’m swamped. My kids have grown a bit and started Preschool and I’m on the edge of a Divorce (I’m filing December 1).

I had this image of all the time I would spend writing, once my kids started Preschool but the reality of it is that I spend the majority of my newly “free” time with appointments and volunteering; conferences with the teacher and projects, homework, and fundraising…It’s a new kind of busy…one I had not anticipated.

Oh, and I had an adult Tonsillectomy a week ago…I wont get into the details about how horrible an adult tonsillectomy can be (or the obstructive sleep Apnea I’ve dealt with over the past year due to constant tonsillitis) but if you’ve had one as an adult or you google “adult tonsillectomy”, you will understand how this affects every aspect of my life.

…and all the ways in which my life has changed since last  year, I am sure that it will still get in the way as I attempt this year’s Nano…

…And Then There’s Work….

It’s hard for a single mom to find a job that (1) pays well and (2) works around a “schedule” (because who can afford daycare, these days?) and (3) is actually satisfying work….That is to say that the Single mom, although brilliant, talented and creative, has no formal training or qualifications to prove specialization.

…and that’s when I came across HR Block’s Tax Course….

I’ve done my own taxes (and that of a few closest to me) for about 5 years now…I’ve researched business taxes, self employment taxes, and the Affordable Care Act out of either necessity or curiosity…and I’m extremely organized and proficient with computers and forms….so I took a chance and enrolled.

I have done done exceedingly well in the course…better than I had imagined…and I have learned A LOT…but this Tax Course is a beast! On the first day, I received two (very large) books of reading materials, tax tables, exercises, case studies and forms. I have learned, section by section, everything I will need to know to be a GOOD tax professional and I have prepared every kind of tax return covered in the class, by hand and I have come to know each tax form line by line.

I have transformed, from someone who knew a little something about taxes to someone who has an intimate relationship with taxes…but I still have a ways to go. With a little over a month left in the course, there is still a lot to learn. I also have independent research and continuing learning, after the class (once I officially become a HR Block employee).

Probably my favorite thing about doing taxes is that the laws are always changing…this gives me the ability to constantly be in the state I’m most comfortable….the state of learning and growing. HR Block is the perfect company because, out of all the Tax Preparation companies out there, they value continuing education and growth more than any of the other companies out there.

So to sum it up….

I’ve got a lot going on….and Nanowrimo 2014 is smack dab in the middle of it all! So, here’s to moving forward…Here’s to making time….Here’s to writing your heart out!

I look forward to the journey, snares and all, as we battle toward the goal of 50,000 words, together!