Writing can be a wonderful hobby. Releasing those inner imaginings, freeing them into the wild, whether on public display or not can mean so many things on a personal level to the writer that publication is often an unnecessary or even undesirable thing. But for those writers seeking a professional standing, those baring their soul to the world and striving to earn the elusive, frustrating yet exhilarating goal of finding a paying audience for their work, publication is their chief concern. And with publication, comes money. Slowly. Sometimes.
Even a check that’s barely enough to cover the cost of your next meal from the dollar menu can be exciting. But as your writing improves and as you narrow down your audience, find editors that appreciate your style, more and more checks in the mail (or nowadays, paypal transfers) will start to materialize. At some point you’ll go from a hobby to a profession. And you’ll be so proud of yourself, you’ll probably forget one universal truth: the taxman cometh.
I’m not an accountant. Let’s get that out of the way. I do, in fact, pay a CPA to do my taxes. It’s something I highly recommend. An artist is usually the furthest thing from a tax professional on any sort of personality, aptitude or career test. Creative accounting is generally frowned on for a reason.
Once you start selling creative work however (or anything) you’ve got to start thinking of it as an actual business. Businesses have overhead, require supplies, have to worry about profitability. Now, I can’t tell you when something is a business or a hobby, but the IRS sure can.
The key bullet points are:
Does the time and effort put into the activity indicate an intention to make a profit?
Does the taxpayer depend on income from the activity?
If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
Has the taxpayer changed methods of operation to improve profitability?
Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
Has the taxpayer made a profit in similar activities in the past?
Does the activity make a profit in some years?
Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity
For me, the production and sale of my creative output (photography, graphic design, writing) has been my sole source of personal income for about four years now.
(I’ve been profitable in three of those – another important item since the IRS will call it a hobby if it isn’t profitable three out of the five past tax years.) (That is a common misinterpretation of the IRS codes!) In that time, I’ve learned a few things about business and have come to find that a lot of creative types either don’t know them or avoid them.
So, think about your writing endeavors – hobby or business? Read over the IRS publication and make a determination about your efforts. In my next few posts I talk about things I do, as a business owner to make sure I’ve got my financial info in order for that dreaded, looming date: April 15th.