Support for Indie Authors discussion

I've read that reporting a loss on tax Schedule C will raise a red flag that could get you audited. Expenses will most-likely exceed income in the first year or more in most author's careers. Has anyone ever reported a loss? If so, has anyone ever had a problem? Any other comments? Thank you.

Honestly, it never even occurred to me until just now. I have no idea what would happen.

I might have to this year. My husband doesn't think that it will matter because of the way we are set up, but this year I spent more in marketing and events than I made. (Which is crazy, because before subtracting expenses, I made more money than I have in the last five years, but what can I say...) Will definitely keep watching this discussion as it develops.

To hopefully avoid insulting anyone, my reason for thinking expenses exceed income in the early years is because there are so many related expenses: website and domain name fees, postage for shipping giveaways won, office and computer supplies used exclusively for writing, advertising costs, and so many more!

FKA Sue, found you a great article http://www.writersdigest.com/writing-...

"If you are working toward making a living from writing, even if you have another job on which you’re subsisting for the time being, then you can declare your writing an occupation by filing a Schedule C and take deductions, even if the result is a business loss. The loss applies to all other income you receive during the year, reducing your taxable income and therefore your tax liability."

I don't see why it should raise a red flag!

A loss isn't necessarily a red flag, but sometimes certain deductions are. Like if you write off a trip to Hawaii as research, or have too many "meal" deductions (even if they're legit). An accountant should know what's generally acceptable without raising any flags. But the key is that you're "working toward making a living at it" like the article above says. When you're pursuing something creative, I do think you get a bit more scrutiny by the lovely tax people. I've been audited (pursuing screenwriting) and they said what I was doing was a hobby, which it wasn't.

Alex and Alexis, Thank you both for the links! Very helpful! Hugs!

Rhonda, Research in Hawaii or even Aruba sounds good. Hmm... Good one! LOL! Sorry your work was called a hobby. That's insulting. Hugs.

I've been self-employed since 2001, and frequently lose money and have reported a loss. Reporting a loss is not a "red flag". However, as mentioned, a loss on what the IRS considers a "hobby" is cannot be claimed as such. The IRS is pretty specific on this point, and has strict definitions as to what qualifies and what does not.

All I can recommend is that you consult someone qualified to make a judgement on this: there are CPAs out there who are certified to do this, and can also act as an advocate for you in dealing with the IRS. They are much cheaper to deal with than tax attorneys. The issue is usually pretty cut & dried, and often requires only a short consultation, so you might even find someone willing to talk to you for free.

Do not trust anything you read on the Web: myths and BS abound. Even in the cases where it is not misinformation, the devil is always in the details.

And obviously, resist the urge to write off "aggressively". If a deduction is not ironclad, don't bother. It's not worth it in the end.

One thing to keep in mind: if you are planning to be a business, meaning you want to pay taxes and pay into social security, you may take certain deductions, but you do not have to claim every little expense. For example: I bought a computer this year. I mainly use it to write, but I am not claiming it as an expense because I would have bought a computer to replace the one that died whether I was an author or not. Advertising and promotional expenses I will deduct because these are items I would not have purchased otherwise.

But, if you are just looking to report hobby income, meaning it will supplement your regular income and will be a very small amount, you would just file that under additional income and not bother with deductions.

You certainly can operate at a loss, but there are limits as to how many consecutive years you can claim a loss. Your best bet is to talk to a CPA.

Owen, Thank you for all your helpful advice. And believe me, I'll "write off" on the far side of caution!

Christina, Thank you for your helpful information. According to the IRS, 3 consecutive years is the limit for claiming a loss on your business. I read an article suggesting how to calculate home office square footage, percentage of utility usage, computer cost, and stuff like that for writers. Nope! Not for me! I'll be sticking to advertising, website domain name, ISBN's, and things like that.

In Germany you need to prove "intent to make a profit", but do not need to actually make a profit for a number of years.

I need information in general on how to file my taxes when dealing with Amazon kindle and create space sales? Do you have to earn a certain amount before filing with it?

K.R. wrote: "I need information in general on how to file my taxes when dealing with Amazon kindle and create space sales? Do you have to earn a certain amount before filing with it?"

You will receive 1099 statements in the next month or two that you will need to report. If you are not looking to deduct business expenses, you would just add this under additional income.

When I start running my private company, I made losses in the first three years, largely because the venture was to design and build a major chemical venture. Then came the wipeout of 1987, raw material supply failed, and the venture collapsed. It took another four years before I was paying tax! (Of course the tax losses previously incurred helped.) Losses happen because adverse things happen. The important point is you have to unambiguously show you are trying to make money, as opposed to having a hobby.

Now I have reverted to writing, one could argue that is a hobby, nevertheless I can wrote off all my expenses against tax because I am still a net tax-payer through my literary affairs. Not a big one, but declaring a surplus for tax is a start to showing your are serious. However, for the first two years on my self-publishing income was a disaster as far as income went -sales were awful. [Now they are merely inadequate :-) ]

Ian, Thank you for sharing your experience and advice. Also, you have a wonderful sense of humor! Hugs!!

Sam (Rescue Dog Mom & Writer) formerly known as Sue. wrote: "Ian, Thank you for sharing your experience and advice. Also, you have a wonderful sense of humor! Hugs!!"

Sometimes you have to laugh. The alternative is just too awful :-)

Good luck with your writing.

Ian wrote: "Sometimes you have to laugh. The alternative is just too awful :-)

Good luck with your writing. ..."

Thanks you, Ian!! And I absolutely agree. Life is short. Be nice and laugh often. Hugs!! : )

AskTamaraBrown wrote: "Hello, you have to make a profit 3 out of 5 years for a business. If not, the IRS may classify you as a hobby. If classified as a hobby, you can only claim your expenses as an itemized deduction..."

Thank you for the helpful comment but the rest of it is unnecessary and a bookwhack, which is against the group's rules.

G.G. wrote: "AskTamaraBrown wrote: "Hello, you have to make a profit 3 out of 5 years for a business. If not, the IRS may classify you as a hobby. If classified as a hobby, you can only claim your expenses as a..."
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