The Internal Revenue Service has a soft spot for writers. Who would have guessed! Once you admit that you are an author by claiming that designation as your profession, the tax laws are on your side. Someone in Washington actually understands that book production takes a long time, and that you can work at it for years without making any proﬁt, because you are still creating the book, not selling it. They will grant you your deductions for expenses for up to ﬁve years before they start refusing your claims to be a “real” writer. On your tax return, don’t list yourself as “store clerk” or “plumber’s assistant” while you are writing. There’s a special designation for writers; ﬁnd it and use it. Oh, you should keep your day job, but think of yourself as a writer and regard “fry cook” as your hobby, not the other way around. Then start collecting your deductions.
Have you set up your home ofﬁce? Then you have a place of business. Measure the space in square feet, determine the square footage of your entire house or apartment, and then ﬁgure out the percentage of the residence that is exclusively used for business. (A 10’ x 12’ ofﬁce in a 1500 square foot house = 8% devoted to business use.) That percentage now applies to all of your housing expenses that affect the entire space—heating and lighting bills, rent or mortgage interest, insurance, homeowner association fees, security system, and termite protection are all common expenses. You can’t deduct painting the living room if you use the back bedroom as your ofﬁce, but you can deduct 8% of the cost of a new roof, since that applies to the entire structure.
Next, take a look at your home ofﬁce and its contents. If you are using an old card table and a folding chair for a desk, you probably can’t deduct their cost, but if you go out and purchase a new computer desk, using it only for your writing, its price will be deductible. New or fairly recent electronics (computer, printer, external backup drive) can be deducted or depreciated. The ﬁrst phone line into your residence is not deductible, but if you add a second line for a fax machine or an 800 number for your business, you’ve found another deduction.
Be sure to keep track of all expenses for ofﬁce supplies—pens, pencils notepads, printer cartridges, diskettes, scotch tape, paper clips, ﬁle folders, labels, a calendar, an appointment book, scissors, a rack to hold current ﬁle folders. You can even deduct the cost of air, if you buy it in compressed form and use it to clean your keyboard. (I use mine to chase the cat off the desk, but the principle is the same.)
Think advertising. Anything you have printed with the name of your company or the name of your next book can be deducted as an advertising expense. Of course you’ll have a supply of business cards, but you can also use the same size card to announce an upcoming book. (I just had some printed with a picture of “The Second Mouse” on them. I have a second set of half-size business cards with photographs of Beaufort, SC, on them to advertise my next novel, The Road to Frogmore.) Both were deductible, as are bookmarks that match your book covers or brochures telling dealers and bookstores how they can order your books.
Much of your book budget will go for travel—to research libraries, book signings or writing conferences. If you travel by car, you can deduct the exact mileage, so long as you keep a log or record of the odometer. You’ll be asked for details of the car’s purchase price, its year and model, its VIN, and its total mileage, so keep them handy. You’ll be able to deduct 50 to 55 cents a mile if your travel is purely for business. I bought a magnetic company sign for under $10.00. On business trips, I slap that on the front door of the family sedan and turn the entire trip into a business expense. You can also deduct hotel bills, parking fees, and bridge or road tolls if you keep records.
And ﬁnally, you’ll need to keep careful count of the books you order for resale. With a print-on-demand contract, you don’t have to keep a huge inventory on hand, but you’ll need a constant supply of printed books to give away, to send to book reviewers, to sell to your friends, to take with you to speaking engagements, or to enter into book contests. You may be asked to report your sales and to pay sales tax, so you’ll need to account for every copy you purchase. Be sure to check with your municipal and state laws on sales tax. In my state, you don’t have to report sales for tax purposes until your sales go over $3000.00, but that may not be so for where you live. The ones you sell will cost you a bit, but the ones you give away can be deducted.
For many authors, these expenses can mount up to a tax deduction of several thousand dollars. Just remember that you are expected to be earning a proﬁt after ﬁve years of effort. If you are making money, you can only deduct expenses that exceed your income. If you are not making any money after ﬁve years, the IRS will tell you that writing is now just your hobby and deny any deductions. It will be time to declare your real occupation as fry cook or plumber’s helper.
Portions of the above blog have been taken from my book, "The Second Mouse Gets the Cheese: How to Avoid the Traps of Self-Publishing," available from Amazon, Barnes and Noble, Apple iBooks, and Smashwords.com.