can I and how would I deduct expenses for a one time self published book

[Kittyfriend]

My spouse is a one time author having spent 2022 writing a book which he self published in 2023.  This is a one time book, not ongoing.  He incurred expenses such as editing/formatting, recording studio, book cover design during 2022, with royalties starting to be received in 2023 after publication.  Since this is a one time endeavor, does Schedule E allow him to deduct any expenses associated with the book writing and publication?   On the income side, it looks like I select intellectual property for the 1099-MISC royalty income but what do I select to enter any expenses?  I don't see a line for one time book expenses.  The expenses incurred in 2022 are higher than any royalties he received in 2023.  Can we deduct an amount equal to the royalties for 2023?   I tried putting an expense amount equal to the royalty in the Miscellaneous expense line and when I selected done with Royalty, it said I had a profit and something about business expenses belong in Schedule C.  Does this mean we can't deduct any expenses?

I am using Turbotax online.  I have not yet paid for the product so I'm not sure which version I will end up purchasing.

[DianeW777 · Accepted solution]

It depends.  You will have to decide if this is a business (engaged in for profit) or a hobby.  A business allows you to deduct your expenses while a hobby reports the income, but no expenses are allowed to be used. Although the income is called royalties, it is reported on Schedule C for self employment if it is a business (not Schedule E). 

• Tax Cheat Sheet for Book Publishing: The IRS considers writers to be small business owners, so you report earnings on Schedule C. Take deductions from this income on Schedule C for expenses you incurred while writing your book. 
• Tax Tips for Freelance Writers and Self Published Authors

How do you distinguish between a business and a hobby?

Answer

In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. A hobby activity is an activity not done for profit. This includes activities done mainly for sport, recreation, or pleasure. No one factor alone is decisive. You must generally consider these factors in determining whether an activity is a business engaged in making a profit:

• Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
• Whether you have personal motives in carrying on the activity.
• Whether the time and effort you put into the activity indicate you intend to make it profitable.
• Whether you depend on income from the activity for your livelihood.
• Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
• Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
• Whether you were successful in making a profit in similar activities in the past.
• Whether the activity makes a profit in some years and how much profit it makes.
• Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

Report hobby income using the steps below:

Other Miscellaneous Income:

1. Go to the Wages and Income  section of TurboTax
2. Scroll to  Less Common Income > Select  Miscellaneous Income, 1099-A, 1099-C
3. Select Other reportable Income > Enter a description (----) and the amount

                         

[Kittyfriend]

Thank you for this information.  Seems very subjective, lots of thinking to do on this one.  Again, many thanks.