Save Thousands - Do What You Love
By: Kate O'Mahony
Tags: Money, Taxes, Finance, Writing, Financial Planning

Your writing is clever, relatable, and witty. You do it well, and most importantly, it feels right. The followers and publications will come, but how is an ambitious writer to survive the making of it all? Since the dawn of corporate times, business far and wide are showing nothing but losses. Uber, Lift, Wayfair, Pinterest — the list goes on. Writing can be a business that claims losses too, albeit not indefinitely.

Losses matter and not only because they hurt. You likely have other income such as wages, part-time gigs, tips, etc. If you diligently report your writing vocation as a business with all of the expenses that go along with it, you could:

Lower your federal and state tax rates,

Increase refund of taxes already paid (e.g., W2 withholdings),

Qualify for additional credits and deductions.

So, if your evil twin is calling your Medium contributions a hobby — resist! And do take a look at what IRS actually considers while making business vs. hobby decisions:

Ultimate Goal. The core business goal was and always will be profit, but what also matters here is intent i.e., whether you are actively pursuing profit, not necessarily have it. Naturally, if you are writing for pure pleasure, it is a hobby, and no losses will be allowed.

Time and Effort that you invest in writing should support your desire to make dreams of prosperity come true. A sporadic activity or amusement diversion does not qualify. You need to write the same way you breathe, which is always.

Education and Special Skills. If your education supports the writing path, all the better. Complementary skills matter as well if they strengthen your ability to have a successful writing career. So great news is — you do not need to be a humanities major e.g., a veterinarian writing about animal well fare or anyone with extensive knowledge backed by experience or education in a relevant field makes a cut.

Operational Improvements. Extra brownie points go to crafty writers who can demonstrate changes and growth. Reaching out to various publications, trying new platforms, investing in new tools — options are aplenty. You are probably already doing all that and more — great job, by the way!

Past Triumphs. Record of successful publications or paying writing gigs you had in the past will further secure your business claim. And unlike your evil twin, IRS will look at all of your accomplishments with great admiration. Time to shine and shamelessly boast about your talents.

Purpose of Expenses. Lavish and unrelated expenses will be disallowed. Please do not deduct your Christmas trip to visit grandma or AirBnB rental in Colorado (which also never showed a profit, by the way). Tax court opinions are abundant on this topic — deductions must be ordinary and necessary. You simply cannot support your claim of being a writer by being in the business of expensing unreasonable purchases.

Complete and Accurate records are a must. Fiction is fatal when it comes to expenses. Credit card companies do most of the record-keeping for you. A simple excel spreadsheet will do the trick and save you a pretty penny on accounting fees.

W hy go thru all this trouble?

Let's look at Jeff Single — he is working as a marketing consultant in New York. His wages in 2020 will be about $80,000. Jeff’s paid student loan interest of $1,500, which he cannot deduct in full because his current income is too high (deduction is phasing out). Jeff’s annual tax liability will be nearly $14,700… ouch.

But Jeff is also a writer — he has a blog and is an active Medium contributor. His writing career is yet to make a profit. When Jeff files his tax return, he claims a loss on his writing business of $10,000, reducing his income, which now is also low enough to claim student loan deduction in full. His taxes are $11,700, and he just made $3,000 by reporting his business on the tax return. Hooray!

For skeptics — if Jeff’s income was about $50,000, he would still save a hefty $1,850. Not too bad for something you already do anyway.

The list of common deductions includes:

Rent, utilities, insurance, mortgage interest, property tax — calculate business use percentage (business space/total space) and apply it to your monthly bills. Or use a simplified method and deduct $5 per square foot (300 sq ft max) with a maximum deduction of $1,500 .

calculate business use percentage (business space/total space) and apply it to your monthly bills. Or use a and deduct $5 per square foot (300 sq ft max) with a maximum deduction of $1,500 Advertising , marketing, promotional items.

, marketing, promotional items. Subscriptions, memberships, software, publishing, data storage, and hosting fees .

. The business portion of monthly cell phone bills.

Relevant conferences and seminars , along with associated travel expenses.

, along with associated travel expenses. Professional fees : photographers, website developer, accountant, etc.

: photographers, website developer, accountant, etc. Equipment such as laptops, monitors, tablets, phones, and office furniture will be subject to depreciation, e.g.; you will write it off over a period of time.

will be subject to depreciation, e.g.; you will write it off over a period of time. Travel expenses required for your business activities.

required for your business activities. General supplies, books, and other relevant items.

Conclusion

If writing is something you do to relax on Sunday afternoon — may it be forever joyous, fulfilling, and free from credit card records. But if you are on a quest for fame and profit, put your Sherlock hat on and do the necessary. In every good story, the heroes must pass a test or three, prove their worth or win someone over. In the modern world, they also have to use excel.

Write-offs done right tend to pay handsomely. So what do IRS tests tell you? Are You a Writer?

Sources: IRS Publication 535, IRS Publication 970, IRS Small Business Tax Tip 2017–04, T.C. Sparkman v. Comm.