Writing: Business or Hobby?

/ Mae Clair

Hey, SE gang, Mae here with a reminder that tax time is looming. Ugh!

A battle struggling writers often face is whether or not the IRS considers their efforts a business or hobby. Very few of us make bucketfuls of money as writers. For most, expenses outweigh profits during the first few years. That sad reality aside, you need to report those expenses if you’re trying to establish a business. I’m by no means an expert, but here are a few things you can do to keep Uncle Sam from viewing your enterprise as a hobby:

Detailed Record Keeping
This may seem obvious, but the more detailed records you can produce (in the event of a dreaded audit) the more favorable the outcome is likely to be. Keep receipts and make notations on each. In addition, use a spreadsheet to track and itemize by category. I use headings such as Advertising, Supplies, Fees, Contract Labor, Travel, Inventory and a few others. Know what you can deduct and what you can’t.

Siamese kitten sitting pointing at screen with one paw other paw on keyboard of miniature laptop type computer stacked on books. Black kitten with green eyes watching intently. Books in background.

And just as with your expenses, itemize your earnings and the sources for each. As a hybrid author, I earn royalties on my indie titles through Amazon and local book sales. I also receive regular paychecks from my publisher, breaking everything out separately in a spreadsheet. My tax account says he loves how easy I make it for him.  🙂

Most importantly–remember to back up your files!

Open a Separate Business Checking Account
I have one that is strictly for my author expenses. By the same token, the royalties I earn don’t get mingled with my regular household account. They go into my business account where they’re simple to track and the bottom line is always visible. It’s also easy to hook your account to PayPal for additional record keeping and a convenient means of paying vendors.

Use a Separate Credit Card
I’m a PayPal fan, but there are times when I need to pay something by card due to the vendor. In that case, I have a major credit card that is used solely for my author expenses. And like a bank account, it too can be hooked to PayPal.

A Tax ID Number
If you do book signings where you sell physical copies and your state charges sales tax, you need to sign up for a Tax ID Number. This is something you can usually do online. In the state of Pennsylvania, I’m even able to register for alerts reminding me when my filings are due. This could be quarterly or semi-annually depending on your state, but don’t forget to file. Even if you go a quarter without physical book sales, you still need to report your earnings (or lack thereof).

iPhone with a PayPal Now credit card reader resting on a lined yellow tabletCredit Card Readers
These are handy little gadgets that turn your smart phone into a credit card reader. The one I use is PayPal Now. It’s a tiny device that plugs into my iPhone and allows me to swipe debit or credit cards when I’m doing book signings. The customer signs on my phone with a stylus and the funds from their account are deposited into my PayPal which can then be transferred to my bank account. The customer receives an electronic receipt via email. I’m even able to calculate in sales tax.

What Else?
I know I’m probably missing a ton of things, but everything you do to validate yourself as a business rather than a hobby is to your benefit—especially in those first few years when you’re not earning income, or not enough to show a profit.

As an example, when I started sending newsletters, I signed up for a P.O. Box under my author name. I’ve maintained that for two years and plan to continue. I’ve also kept records of the blog appearances I’ve done, the guests I’ve hosted on my own blog, and any promotional materials my publisher has provided. I’m fortunate that they’ve put me in print ads in genre-specific magazines twice, and I’ve maintained copies.

What about you? Do you have any tips you can share in helping authors navigate the choppy waters of tax time? Anything you’ve found particularly helpful? Obviously, a good accountant is tantamount, but throughout the year we’re  managing on our own. Let’s talk taxes, and hobby vs. business in the comments below!

Promotional banner for author Mae Clair with bio and author photo, spooky house as header in wash of red

99 thoughts on “Writing: Business or Hobby?”

    • Writing is a wonderful thing whether business or hobby. It started for me as a hobby too at a very young age, but I always knew I wanted to take it to the next stage. How ever you choose to practice your writing—-write on! 🙂

      Thanks for visiting and commenting!

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  6. Home office deductions are tricky if you don’t have a dedicated space. But considering the amount of electricity, etc., I use just to blog and write, it might well be worth looking into. Thanks for some good tips.

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    • That’s why I’ve held off on the home office deduction….well, and the headache of sorting out the expenses. I do have a dedicated space, so I really need to take advantage of it. It’s great to “meet” you!

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  11. Very helpful. I’m a huge PayPal fan too, but I just ordered the Square for POP sales because one of my publishers doesn’t use PayPal, so it’s easier to stick with their regiment when ordering books. The Square also gives you the details in an easy-to-follow list. My husband’s the numbers guy, so I let him deal with the taxes and such.

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    • Sue, my critique partner uses Square and really likes it. I actually looked into that one first, but since I already had a Paypal account, it just made sense to keep everything altogether.

      And hey, lucky you with a numbers guy! 🙂

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      • Right now, I’ve been trying to maintain records for writing for tax purposes. As of this point though, I don’t have any income to report but hopefully, that will change in the future.

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      • Traci, I didn’t have income to report the first two years, either….at least none that made a profit for me based on my expenses. But I still wanted to deduct those expenses. The key (should I be audited) was in making my business appear legitimate instead of just something I was doing as a hobby. That’s where all those other things came in like spreadsheets, separate accounts, etc. Eventually, the profits catch up and outweigh the expenses. Probably why the IRS gives new businesses five years to show a profit.

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      • I’m going to look into some of those things. Thanks! I got a tip from another author of writing what I do daily as part of my business. Not just the actual writing time but blogging, reading, everything that concerns my career. I’ve been doing it since Dec. It’s like a little record of what goes into everything. I’m not very good at spreadsheets, lol.

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      • Hi, Traci. I was never good at spreadsheets either. I’m a graphics kind of girl but I had to learn excel and spreadsheets when I started writing for profit. And I fully agree with that other author. I track all of my blogging and reading on a daily basis to back up my expenditures. Thanks so much for visiting and commenting!

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  16. Great, informative article, Mae! We started as a business from the beginning. MR N is the business side and I’m, as he calls it, the talent. He loves doing taxes and has a spreadsheet for our author earnings, deductions as well as for our author promotions business. Since 100% of our business is online, we rely on Paypal. They are simply wonderful in tracking everything for us.

    I’m going to mention to MR N about the separate account for our business as well as credit card. That seems like an easy way to track expenses and income.

    One thing I’d recommend is to also look up what you can deduct and what you can’t. We’re able to deduct our internet bill (partial) because the Canada Revenue Service allows for it. Don’t go deducting for that cat nip just yet unless your company mascot is your cat. 😉

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    • Hi, Mrs N (and Mr N) I think I’m going to have to look into making my cat, Raven, the company mascot 🙂

      It sounds like you two have a good set-up. I started as a business immediately as well. I made the decision I was in it for the long haul, so I saw no reason not to. Unfortunately, I don’t have the same passion for taxes and spreadsheets that Mr. N does, LOL.

      I completely agree with you about Paypal. They are fantastic and generate a log of everything. I think I read about the separate business account and credit card in a tax book for authors. There are a number of them out there and they also provide information on what can be deducted and what can’t be. Also what you need to depreciate over time. Truthfully, the whole thing makes my head spin sometimes, but I look at it like social media. It’s something I have to learn to run a successful business.

      Thanks so much for sharing and commenting!

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  17. Good tips, Mae. I too love using PayPal and that is what I have connected to my website for sales. It works quite well and I have found it’s super easy at the end of the year to pull up reports on PayPal.

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  19. Thank you for an illuminating and helpful post, Mae. I use a spreadsheet and separate out between book sales and my editing business and the expenses for each. I also deduct a percentage for internet and electricity for my home office. I hadn’t heard about the PayPal card reader, though. Here in the U.K., getting a card reader from your bank proves too expensive to make it a realistic option for a small business. Good luck with your tax returns, everyone! 😊

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    • Harmony, you really have a lot to juggle between book sales and your editing business. I can’t imagine tracking for two businesses, one is headache enough, LOL! Next year I really should add on the home office deduction. I’ve skipped that in the past, but it’s time I dove in to take advantage of all that I’m allowed.

      You might want to check into the PayPal card reader (since bank readers are so expensive there. That’s not even something we have here to the best of my knowledge). I think the reader was $14.95. PayPal takes a very small percentage of each transaction but there are no monthly fees and I’ve found it to be well worth the little I give up to them.

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      • I just had a thought… can we deduct for wine and music too?!? Lols … Essentials when I write of an evening! (Don’t worry, though, no alcofrol when editing!) 😜

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  21. Great post, Mae. The minute I decided to make writing a career I filed for a business license (a little expensive here in British Columbia, but it can be written off as an expense :)), then I called and received my EIN for my United States sales. I use an excel spreadsheet for my expenses and have columns for everything from monthly fees such as Mailchimp, to advertising and book covers. Don’t forget to separate the taxes paid, they can be used against the expense total!
    For my books I use another spreadsheet and list sales, pages read (if in Select), other vendors, books sold per month. The more you can break things down, the easier it is for your accountant. 🙂

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    • Jacquie, it sounds like you really have things on the ball. I bet your account loves how easy you make it for him. And good point about the taxes paid. That was one I forgot to mention, but it should definitely be included on expenses.

      I wasn’t aware you had to have a business license in Canada. Good thing they allow you to write it off as an expense. Thanks for sharing and all the helpful information!

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    • Hey Jacquie, just curious about the business license. Is it worth it and how much was it? ** You can email me if you don’t want to reveal it here. ** 😉

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      • Definitely worth it, mainly because it allows you to operate as an accredited business. You will be able to write off anything associated with your company and, as long as you aren’t making a ton of money (not that I’d complain if I did, lol) you should receive a good return on your yearly taxes. It will depend by province on the cost. When I had my restaurant license in Alberta it was only 25-30, here it cost 4 times that amount, but it’s only a one time fee so I’d say it’s worth it.

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  22. Interesting and informative post, Mae.
    I admit we, here, have no way of deducting anything as expenses. We have to declare the income and pay the tax. As simple and useless for an author like that. Sometimes the effort to go to the office, stand for several hours in the queue, and then paying more than half of what you gained, makes writing for me just a hobby. And sometimes I think that not being the next S. King or Joanne Rowling is a blessing in disguise!

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    • You can’t deduct anything, Carmen? I had no clue it was like that over there, especially given you have to declare the income. What a shame! It’s a good thing you enjoy writing as much as you do. I imagine others wouldn’t be as inclined to do much more than make their passion a hobby. I’m glad you’ve taken it further, despite the unfairness you have to juggle.

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  25. This was very helpful, Mae – especially since it’s the first year I’ve had to keep track of all this. You’ve also given me some good ideas to make things easier. And I don’t understand why catnip can’t be considered a deduction.

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    • LOL! My cat, Raven, would be with you on that catnip deduction, Teri.

      So glad you found the post helpful, Teri. I presented myself as a business from the start, as soon as I began publishing, so I had a learning curve along the way. I’m sure there’s still a lot more I need to learn, but I feel more confident in all I’m doing to function as a business vs. a hobby.

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  29. Great post, Mae Clair. Another ting to keep track of is the milage used to attend events. You need to keep a log but in the end, it is well worth it. If an author is serious the home office deduction can come into play as well.

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  32. Great info, Mae! I’m hoping to need these tips for taxes next year (because crossing my fingers a publisher will pick me up this year!) It’s the whole hobby vs business thing that confounds me. Not going to clutter my brain with it quite yet. Thanks for sharing!

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    • I’ve got my fingers crossed for you too, Julie. And the biggest hurdle with tax time is proving you’re a legitimate business, especially in the first years when your expenses might outweigh income. Usually we’re laying out a good deal of money for set-up, but each year that gets less and less as set-up expenses transition into maintenance expenses. By the same token (hooray), income is usually growing too.
      And I’m looking forward to the publisher announcement. I know it has to be just around the corner 🙂

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    • I started doing book signings last year and realized what a hassle it was going to be making change. I also figured more people would be likely to buy if they could swipe a debit or credit card, so learning about credit card readers was yet another thing I had to learn. Fortunately they’re super easy to use. I even practiced with my own card (and minimal amounts) before the official run at the first book signing, LOL.

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    • I’m glad you found it helpful, Joan. Given Uncle Sam wants his portion of our income, it only makes sense to claim our expenses too, and that involves operating as a business. I itemize everything, LOL!

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