Tax Tips and Information for Book Authors
Unique Issues to Be Aware Of
Book authors face some unique situations when it comes time to file their tax returns.
From keeping records to deciphering what it means to be an "exception" to a key tax rule, here's a round-up of tax-related issues that may affect those who write books — along with links to additional helpful tax-related articles especially for book authors.
Book Writing: Hobby or Profession?
The "hobbyist vs. for profit" distinction for authors matters greatly for your tax reporting. Because the job of a book author is not necessarily "steady," there is an ebb and flow of income, some years might be more profitable than others — some years, not at all. In addition, with the proliferation of self-published authors — many of whom do see at least some income from their work — it becomes a bit confusing.
Profitability is a key factor in how the Internal Revenue Service determines whether or not you can legitimately claim the costs of your writing work as business expenses.
If you don't already know for sure, it's important to be aware of how the IRS makes the distinction between whether you're a hobbyist writer or professional author.
Learn about the IRS parameters regarding "hobbyist vs. for profit" that might impact you as an author. (1)
Writers and Taxes: An Important Exception
The profession of "free-lance author" is a bit different than most others in the eyes of the U.S. government — at least as far as capitalizing expenses on a tax return concerned.
The uniform capitalization rules require that most taxpayers match expenses with the income related to the expense during a tax year. However, since 1988 writers (and other artists, such as photographers) are excepted from this rule. That means, if you're working on a long-lived book project (such as the biography of a U.S. President), you are allowed to deduct the expenses related to that book (say, travel for research) in the year the expense is incurred rather than in the year you receive the income.
Typical Tax Deductions for Authors
Bookmarks, launch parties, Book Expo America (BEA) trade show attendance, membership fees for the Author's Guild — those are just a few of the business expenses a book author might incur. While you're gathering and organizing your receipts — or setting up your new-author organization system for the coming tax year — learn about some author-specific, typically deductible expenses, so you can remember to plan or and/or keep the appropriate records for them.
Sales Tax Payments for Self-Published Books
Income taxes aren't the only taxes self-published authors need to worry about. If you're a self-published author and sometimes sell your own books, you'll likely need to be collecting and paying state sales tax.
Disclaimer: This article is meant to give general insight into tax information that might apply to writers, and to give readers an entry point so they themselves can research further. While every effort was made to ensure the information in this article was accurate at the time it was written, the Book Publishing site guide is a writer—not a tax expert. Therefore, anyone filing his or her taxes should consult a qualified tax preparer or tax expert for updated federal and state income tax and sales tax laws and further specifics on how these rules might apply to an individual tax situation.
Following are specific IRS resources regarding the subjects mentioned in this article, to facilitate research into individual tax matters.
(1) Internal Revenue Code Section 183 (Activities Not Engaged in for Profit), as described in FS-2008-23
(2) IRS Small Business and Self-Employed Tax Center re: Capitalization Period of Direct and Indirect Costs
(3) IRS Publication 334 Tax Guide for Small Business
Note: The general information included in this article is not to be used avoid any tax penalties that might be levied by the IRS (see the Treasury Circular 230 regulation for the specific provision).