Most writers start young, secretly writing journals or poetry, and reveling in the pure joy of stringing words together. As they age, many of them will shelve their talents to make a living in a less-creative field, the majority will spend a lifetime writing occasionally, just for the joy of it, and a small percentage will come out into the world as professional writers.
So how does a writer know whether they are engaged in a hobby or working as a professional writer? The answer is found within a couple of lines of IRS tax law; it’s not creative writing, but for any writer who hopes to make money with their creative talent it should be required reading.
To the IRS there is only one reason to be in business – profit. If your primary motive is to become a famous writer, to put your words on paper because you need to get them out of your head, or to push a particular viewpoint, you could be a hobby writer. Or, you could be in business… it all depends on you.
Any freelance writer who treats their writing as a business can file their taxes as a business, once they understand what the IRS expects of self-employed writers. And, the benefits are big – a hobby writer must report all writing income but can only take expenses up to the amount of that income. Those in the business of writing are allowed to write off all expenses, even if they exceed the writing income. For part-time writers this can mean big tax refunds from W-2 earnings.
To the IRS, the distinction between hobby income and business income is clear; a business is always profit motivated. And, a business that has profit as its main motive is always looking for ways to increase their income, even if they are engaged in a part-time activity.
Even though the freelance writer may need a paycheck today, in order to be successful in the business of writing a writer needs a long-term business plan. Spending money on advertising, promotion, business classes, networking expenses, and the equipment necessary to do your job are all part of growing a business. Trip expenses that outweigh any potential for profit, the lack of record keeping on article submissions, running your writing finances out of your personal bank account, and not having a set working schedule are all signs that your goal may not be profit minded.
Being a hobby writer is not a bad thing; you just need to understand the rules about hobby income and expenses, and make sure they are reported in the proper place on your personal tax return.
For the serious freelance writer, because writing is considered to be a hobby by the IRS, the tax return of a professional writer with repeated losses could be pulled for an audit. If that happens, the IRS will ask you to prove that you are operating as a business. For the writer with a written business plan, a dedicated writing schedule, and good financial records, that’s generally an easy audit to win.
So, if you want to be a professional writer, let those creative energies flow when you write, but when it comes to taxes and the bottom line, remember what the IRS says… only those acting in a profit-minded manner get to file their taxes as a business, for everyone else, it’s a hobby.