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Holy Yikes! Self-publishing and Tax Law

I published a book last year. I made some dough on it. Not a lot, but enough to generate two 1099-MISC forms from Amazon and Smashwords.

This week, I went to the TurboTax website to do my taxes. 1099-MISC with an amount in box 2, it told me, is either property rental income or business income. Plz to be proceeding to fill out a Schedule C.

I have a business?

So I start in on the schedule C. Business name, business address, business type code. This all seems rather silly. I write fiction from a chair in my living room. Some day, God willing, I might be a self-employed writer, but not right now. I have the proverbial day-job, a full-time job in an urelated field that brings in the majority of my personal income. Now onto the deductions. Oh, yes, I paid some money to get a personal website put up to promote my writing and book. Enter the expenses on that.

Suddenly, my refund, which was not itty-bitty due to mortgage interest, doubled. What. This can't be correct.

Now, ask some people, this is all perfectly legit--especially if Turbotax lets you do it leads you down the garden path right through it. But I'm not keen on the idea of being audited. So I spent an hour plus today waiting in the queue for TurboTax's free CPA chat. Schedule C is correct, says my Free CPA. "But it's not a business," type I. Free CPA disappears for a moment, then gives me this useful info dump:
"There is quite a bit of law on the distinction between a hobby and a business; but basically you have to record hobby income and you are allowed to deduct the expenses to that hobby, as long as they do not exceed the income. Some of the factors the IRS and the Court looks at as to in the distinction are:

(1) The amount of time you spend at this hobby or business can be a determining factor. If you have other trades or businesses, or if you have employment with someone else, it may be obvious that the activity in question is a hobby because you may not have sufficient available time to devote to the concept of making this activity a business. An example of this was a case in which an attorney was found to be in the business of gambling because he concentrated on his betting activity more than his law practice and his intent was to make a profit.

(2) Your intent in this particular activity also weighs heavily in whether or not the activity is a hobby or a business. intent is usually determined by considering other factors. Do you keep records as though this were a bona fide business? Do you spend sufficient time to show intent to make a profit? Do you advertise? Do you do other things that are characteristic of a person who's trying to make a living at this activity?

It's not a cut and dried decision, but if your activity is a business, your best defense of its business nature is to treat it like a business."

Yeah, legally a hobby, for now.

So I return to Turbotax, enter an expenses write-off equivalent to my sales, and wipe my hands clean.


( 8 comments — Leave a comment )
Feb. 7th, 2013 11:30 pm (UTC)
Will they still let you use the 'free' edition of Turbo Tax when you're using a form C? That particular form scares me.
Feb. 7th, 2013 11:39 pm (UTC)
I don't know, since I haven't used the free edition in years (mortgage and prop taxes doncha know).
Feb. 7th, 2013 11:46 pm (UTC)
Okay, you're already using form A, so not an issue. ;o)
Feb. 8th, 2013 03:34 am (UTC)
Because I published a book (textbook) that made some noticeable amounts of money, I've claimed writing as a business for years. I understand that I'll probably need to reconsider when my royalty checks vanish next year, but it has been nice to claim the computer and office, etc--my husband publishes every three or four years, but usually makes minuscule profits (scholarly writing) but our tax guy says it's fine. Looking at your criteria, I'd say his passes as a business, but mine's getting questionable. I would like to make a profit...
Feb. 8th, 2013 04:07 pm (UTC)
It's like the CPA said. It's not cut and dried who can claim the deduction, it's what you think you can defend if you are audited.
Feb. 8th, 2013 04:05 am (UTC)
I've been making enough from indie publishers in the last 5 years to have to use the 1099's and I'm always worried about it. It's like a lot of hassle just because I have a 1099 for 70$ or whatever. That said I don't write off my computer etc even though I suppose I could.
Feb. 8th, 2013 04:10 pm (UTC)
When your deductions for work expenses far exceed your accumulated income, it's probably an audit trigger.

Of course, I could be a nervous newbie.
Feb. 8th, 2013 04:28 pm (UTC)
yes exactly
( 8 comments — Leave a comment )