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Level 1
posted Mar 20, 2023 7:20:35 AM

Tracking expenses for deductions for hobby writing a book that took several years to research before being published

So, I'm a hobby genealogist.  I have spent the better part of 10 years, as a hobby, creating an historical record of my family- from Danish England to and through all the primary early immigrants to North America.  I must say, for historians as well as family, it is a ground-breaking book.  But 10 years of expenses.  Ancestry.com, Newspapers.com, trips to England to research, etc.  I should publish this year, if my health remains good.  Books like it sell for over $100.  I will self publish, but may use some publisher advocate to lobby libraries and historical societies.  But the expenses run about $1000/year, not including technical equipment.  Trips, and I've made a half dozen, cost perhaps $4K each.  I have kept records.  How do I manage this from a tax point of view?   I do have another personal business- IT support- so I file for that using Home and Business.  I also have one other book self-published on Amazon.  It was a separate research project.  I don't make the $600 threshold on that. 

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1 Replies
Expert Alumni
Mar 20, 2023 8:03:44 AM

It depends.  First, I want to make very clear that one dollar of earnings is taxable.  The six hundred dollar threshold is simply a rule for the payers.  If a person or company pays another person for services they are required to file and send to the IRS and the individual a Form 1099-NEC once they have paid at least $600 to one person. This is not the rule for whether and when the income earned is taxable.

 

As to whether expenses may be deductible should income ever come to fruition, the IRS will rely on their hobby vs business language to decide what might be allowed, if anything.

  • 'The language of the statute is unambiguous. It provides that, in the case of an individual, amounts attributable to the production of a book are required to be capitalized and deducted over the life of the income stream generated from the production activity. Since petitioner is an individual who incurred expenditures attributable to the writing of a book, those production costs clearly fall within the ambit of section 280.'
  • Tax Tips for Authors, Freelance Writers, etc

You can decide if it is hobby or business income.  This IRS link will help you: Business or Hobby?

 

Key elements:

  1. A hobby requires you to report the income you received and under the current tax law, Tax Cuts and Jobs Act (TCJA), no expenses are allowed to be used to reduce the money collected even if you itemize deductions.
  2. A business allows you to deduct the costs necessary to obtain the income.  The law explains that 'you must be engaged in the activity to produce a profit'.  The test under IRS tax law is that you must show a profit three out of every five consecutive years to be considered a business.

Once you decide what type of income this is you can use the links below to see how to report.

In the end, you will want to review the details provided to reach a conclusion of hobby or business.  Based on the information you provided, it resembles a hobby.