In my 40-plus year career as an income tax preparer, all too often I would find that clients who were trying to earn money as self-employed, or as freelancers, but were not successful did not realize that they could deduct their expenses (losses) against their other income.
If you make a sincere effort to earn taxable money, the IRS allows you to deduct the expenses that you incurred in doing so. If those expenses exceed income, you may apply them against your other income. You deduct the expenses on Schedule C of your annual Form 1040. The appropriate expenses are deductible even if your income is zero. The key to their being allowable is a sincere effort to earn taxable money.
What constitutes a sincere effort?
Submitting articles for publication. Save your rejection slips, your receipts for postage and other submission expenses, and keep a record of the articles and queries submitted and to whom.
Advertising (promoting) expenses that promote your writing business. Business cards may suffice depending on the nature of your business.
Networking – those writer’s luncheons that you attend in the hope of meeting the right editor or agent. Keep a record of to whom you talked and how they might help your sales.
Workshops, seminars and courses you take to maintain and improve your existing skills.
A record of the time spent writing, researching, and submitting, call it a journal if you choose but all you need is a spiral bound notebook.
A checkbook exclusively for the business is almost mandatory, If you are not bringing in money, you will have to transfer personal funds into your business checkbook. Your business expenses paid with those personal funds are part of your deductible expenses. Pay all your writing expenses out of the checkbook when possible.
What can I deduct if I am making a sincere effort?
Writing supplies and equipment.
Local transportation for business purposes including doing research, travel to the post office, travel to bank for related business purposes.
Overnight travel is a more complex deduction. You will want to hire a professional tax preparer to help you through that deduction.
Seminars, workshops and courses to maintain and improve your writing skills, but not to originally obtain those writing skills.
Your home office may qualify as a deductible expense. It must meet two rigid criteria. One – it must be regularly and exclusively used for your business. Two – It must be your principal place of business. I would suggest that if you want to deduct home office expenses, then you should hire an experienced tax preparer to help you.
Internet service and phone service. You may have to allocate between personal use and business use if you don’t use these service exclusively for business.
There is much more to the Internal Revenue Code than the suggestions above. What I’m trying to say is don’t automatically assume that you can’t take your deductions because you made no profit, no income or even any sales. Your expenses are deductible if you made a “sincere effort”.
As you can see by reading the above, there may be fifty shades of gray involved in interpreting each of the concepts mentioned. The IRS is very clear in that, if you are sincerely trying to turn a profit from your work, you may deduct the related expenses from your income even if your income is zero.
William Pepe was a high school teacher for twenty-three years. After teaching ten years, he accepted a part time position as an income tax preparer. Gradually he developed clients of his own and ultimately spent the last twenty-eight years of his working career as a self-employed income tax preparer. After retiring, Mr. Pepe continues to prepare income taxes part-time and develop an avocation of freelance writing.