In the old television show Sanford and Son, Fred Sanford asks a man, “Who says you’re an attorney?”
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“I do,” the man says.
Fred says, “Who says you’re not?”
The man mumbles, “The State of California.”
You don’t want to be on the wrong end of this punch line with the Internal Revenue Service if you’re audited.
Who says you’re a professional writer?
If you’re an undocumented writer (the IRS term for someone who writes only as a hobby), you have nothing to prove. You need only to report your writing income on Form 1040 as other income, and your writing expenses on Schedule A, if you itemize deductions.
However, if you reported your writing income and expenses on Schedule C as a professional writer, you must be able to substantiate that your writing career is “an activity engaged in for profit.”
All income you receive from your writing efforts is taxable, whether you represent yourself as a professional or a hobbyist. The benefit of professional status comes on the expense (or deduction) side of the ledger. Professional writers can deduct all “reasonable and ordinary” business expenses, even if this results in a business loss.
Key in determining if your writing is a business or a hobby is whether you write with the intention of making a profit. The IRS limits deductions related to an activity not engaged in for profit (a hobby), as explained above.
How intent is determined
The IRS considers nine factors to evaluate the profit motive of a business activity, so be prepared to discuss these and provide documentation if you’re audited:
- Businesslike manner
- Time and effort devoted to the activity
- Expected appreciation
- Taxpayer’s success with other activities
- History of income and losses of the activity
- Amount of occasional profits earned
- Financial status
- Personal pleasure or recreation
Professional writers should consider a one- or two-hour appointment with a professional tax adviser to help set up their financial books, including a day planner for documentation of business activities, a business mileage log book, and the documentation needed for other travel, education, and entertainment expenses. This will be money well spent, and it’s tax deductible.
Gary A. Hensley’s articles have appeared in Writer’s Digest and National Public Accountant. He contributed to Making Money Freelance Writing (Writer’s Digest Books). Gary taught at Davenport University and was an auditor for the Michigan Department of Treasury.