Wannabee

If I go to the movies and write a movie review, or go to Borneo and write a travel article, my expenses are tax deductible. If I work on autobiographical/personal essays regularly, is my life deductible?

SeattleCPA

I bet I can answer this... I'm both a CPA and a writer.

Here's the general rule--the actual law... you can deduct "ordinary and necessary" expenses of a business on a business tax return. Statutory language is to be read with its everyday meaning, so "ordinary" means ordinary and "necessary" means necessary.

A handful of hopefully useful comments about this, though...

1. Think about whether other businesses deduct expenses like you want to deduct. I.e., is the deduction truly "ordinary and necessary?" Kind of a closely related point, if someone worked for you as an employee or a subcontractor, would you reimburse the same expenses for them...would you, e.g., consider them ordinary and necessary. If you have an editor helping you with the book, would you reasonably reimburse him or her for their grocery expenses because understanding that element of life means they're better able to handle your autobiographical descriptions of activities like shopping and eating.(HINT: The answer here is, er, "no and you're kidding, right?")

2. An activity like writing may not be a business at all. It may be a hobby. If that's the case, the hobby loss rules apply...basically the rules say you've got to regularly show a profit in order to be a business with tax deductions.

3. The IRS, interestingly, uses an example of ballet tickets in one of their publications. They point out that for a dance company director, going to the ballet is deductible because it's probably work-related... For someone (say a writer smoozing their publisher) going to ballet is fifty percent deductible as a business entertainment expense if business matters are discussed before, during or after the show. (NOTE: Meals and entertainment expenses of a business are only generally 50% deductible.) For anyone else, the expense of going to ballet is a personal, nondeductible expense.

4. Now that you think you understand this, here's a first wrinkle to show you how nit-picky the IRS and counts can be...Remember Stevie Nicks, the lead vocalist for Fleetwood Mac? She tried to write off on her tax returns the expense of the stage costumes she wore during a show. According to the court records, the costumes can often or usually be worn only once... The court, agreeing the IRS, disallowed the costumes as business expense saying, basically, that the clothing could be worn as street clothes.

5. And here's another wrinkle I heard another writer (who happened to be a tax attorney, I think) present at a writing conference a few years back. Some guy was writing a guide book to legal brothels. He therefore took as deductions the cost of, er, visiting those brothels. The court disallowed the deductions, calling the services provided "intrinsically and inherently personal in nature."

Summing up, I would say that unless you're really making money as a writer, you probably can't have business expenses. And when you are making money as a writer, you can write off most expenses connected tightly to the business of writing... but you've still got to pass the giggle test.

Hey, given that I'm sharing this info, I should say that I am a CPA, have a master's degree in taxation and have been a commercially successful writer (both books and magazines) for almost twenty years.

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Steve Nelson, CPA, Dummies author
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HarryG

SeattleCPA

Ah, Ireland, the dream of every writer who's finally receiving royalty checks...

At the Waterside Conference (which used to the be annual computer book writer's get-together in San Diego every winter), the day always ended in the beachside bar with writers discussing the practicality of moving to Ireland... at least for little while.

This ritual ended when someone finally learned that reference works didn't quality for the exclusion of royalty income from taxation.

Also, for US writers, note that the US taxes its citizens and residents on their worldwide income... so you have to renounce your US citizenship or residency to get tax-free royalties.

__________________
Steve Nelson, CPA, Dummies author
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Wannabee

I have been self-employed in another field for quite a few years so I have some exposure to this, which is another way of saying I havent been arrested yet.

You must know that you dont have to show a profit at all, as long as you are operating with that intention and can prove that you are running the operation in a professional manner. You just need to prove the profit motive to the IRS's satisfaction. You have to jump through some extra hoops if you regularly dont show profit, but it is often done by starving creative artists.
Whether I am making money is largely irrelevant, from a legal standpoint (with certain exceptions, like business use of home eg); it just makes it much more simple to prove the profit motive.

Say I take a 2 week or even 2 month car-camping trip, or travelled throughout Europe, I write every day, and write a story or several stories or even a book about it. The expenses thus incurred seem to be both "necessary and ordinary" for an autobiographical/personal essay writer, just like going to the ballet would be deductible if I was writing a freelance review of it. Thats the case I would like to make anyway. If I was doing the same thing on assignment many of the expenses would be deductible, would they not?



OK, but I'm not sure how that applies directly, unless I tried to deduct my "writing clothes" . I was being slightly sarcastic when I asked if my "whole life" wasnt deductible. I realize there are many things that are not deductible. But it also seems that there are quite a lot that are deductible if I'm constantly writing about my life, things that are on examination necessary for that type of writing, that one might easily overlook or pass off as personal expenses. While I'm not interested in pissing the IRS off, I am interested in knowing the full allowable limits of deductibility, like your example below. I'm interested in tax avoidance, not evasion.


Wel...hehe..I'm not sure I agree with that decision, but I admire the guy for trying to find the limit.

I have to strenuously object again to this requirement of making money, as it really is not a requirement for regular and ordinary expenses to be deductible in the US. I cant deduct SOME things if I have no PROFIT to deduct it from, like business use of my home for example, but that is a separate issue.


And I'm sure you know a lot more about tax laws than I do, but I hope you will clarify these points.

SeattleCPA

I think the problem is that language about ordinary and necessary. Businesses are supposed to make money. If you're not making money, at some point, you don't look like a business. I think it really is that simple.

Here's another way to think about this. Try pointing to some big or well-known business that takes the position that it doesn't matter if they never make money.

Sure, that's a position often taken by nonprofits... but it's not business-like. You would not accept that of your employer... or some company whose stock you'd bought.

Sorry.

BTW, good luck with your writing!

__________________
Steve Nelson, CPA, Dummies author
Downloadable Do-it-yourself Kits
limited liability corporation, forming an s corp and incorporating a business