Deductions for writers

How many art galleries are there in South America?

I think there is a big question about the purpose of the trip and any IRS auditor worth his salt would pose it. Anyway.....

Let's see now. What's that old accounting principle of "matching"? (grin

I thought once of writing an article about Scottish railroading for just such a purpose, i.e. selling the article to a nationally known Trains magazine, but inquired first and found out such would not be within their future plans, thus no money to be made.

Even if I could have had the article, with pictures, accepted for free, I can't see any way my vacation expenses could have been deductible.

However after the first Scottish vacation back in 1991, while walking the IRS auditor to the door, I showed her four enlarged pictures of the Scottish highlands proudly displayed in the waiting room, and quipped to her: "Those pictures cost me about $1,000 apiece." The trip cost was thanks to MasterCard; the look on her face, priceless! And no, I did NOT write off those photos on my 1040.

ChEAr$, Harlan

No. There was no profit motive, so it's not a business. There wasn't even any hobby income.

-Mark Bole

Maybe, but at best it's a stretch.

If he's planning to go into a new (sideline?) business writing art magazine articles, and this one was to get credentials in order to get future paid business, then perhaps.

Once he gets that future paid business on the basis of this article, he could then perhaps amend. (Though his time is running short for

2005.)

Seth

Well, if the purpose of the trip was to visit art galleries to find works to hang in his office, I imagine it might be deductible if he's got a good reason, such as he markets his services primarily among artists.

As far as the article, I can't think of anything that would convert that trip to one for business purposes unless he can argue that his article is parimarily for PR/marketing purposes.

Stu

"Mark Bole" wrote

How did you conclude there was no profit motive?

It's one of those "facts and circumstances" situations. You look at the business, how he runs it, markets it, etc., and see if he's running it in a way that would make sense if he were trying to make money. It can be pretty objective, but it can also be really obvious.

Stu

There are nine factors used by the IRS to determine this, no one factor is determinative.

Based on the information given, it is pretty clear to me that there is not a profit motive when all of these nine factors are applied to this situation. One also looks at how much time has passed without any attempt to try different operational practices to make money.

There may be other facts and circumstances that would push the other way, but I was going simply by what information was provided.

Another item to consider: even if there is a profit motive, start-up costs are not necessarily fully deductible in the year incurred.

-Mark Bole

I agree. Here I do not think we have enough facts to draw this conclusion yet.

Right, Pub. 535 where it talks about hobbies v. businesses is similar to your wiki citation blah blah and indicates it can be gray ground. But I would not put it as though the IRS has an algorithm that spat out a "yes" or "no" answer. I hesitate to give the dentist such a dispositive response because ISTM many folks do freelance yada writing not as a main source of income, but certainly as a source of income. Over the years, they get better at it (or not). The dentist may be in the early stages of a business, after all. He may be near or at the point where he does have a Sch. C situation. It depends.

If the dentist has done nothing more since this trip and this article to pursue writing as a business, then I would also not advise him at present to try to write off the costs of the trip as a Sch. C expense. My grounds would be lack of intent to do this regularly and continuously.

I didn't. *I* spat out a "no" answer, I only referenced the IRS reg in response to your question and re-iterated "no one factor is determinative". This type of issue clearly lends itself to dispute, since it has been in tax court many times (unlike me).

Sure, if we had the chance to ask questions in the course of performing due diligence, a lot of additional information might come out that pushes one way or the other. But we don't. That doesn't mean we can't evaluate the facts that were presented by themselves (this seems to be the main point we differ on).

If he started the business in 2005, then his Schedule C for that year should have the little check box on line H so marked. Having zero revenue and lots of deductible expenses (which is not the same thing as simply having a net loss) is not a good sign in the first year of business.

If this person chooses to claim the expenses, I would advise them to file Form 5213 also.

Now, if Dick's brother the CPA, who actually has talked with the taxpayer and presumably has asked reasonable questions, is wondering "is there *any* way the expenses are deductible" (emphasis added), the implication is he doesn't think so, either.

-Mark Bole

"Mark Bole" wrote

My only concern is that your first response did not express the above. ISTM that, lacking a statement such as the above, "due diligence" has not been met.

Just exchanging impressions here; not trying to jump all over your case. I really just wanted to know on what you based your conclusion that there was no profit motive. It seemed, to me, a leap rather than based on the facts as presented. To me, the facts as presented so far suggest the guy was at least a little interested in making money from his article and possibly future articles.

I believe it is a common occurence for new businesses not to make a profit the first year. ISTM many project out a few years or more before they expect to make a profit.

Again, not looking to stir things up. More that your post did not make sense to me, whereas your posts usually have in the past.

So, how would someone new to a business handle the first few years? He could claim losses, and risk a "discussion" with the IRS. Or, he could just eat the losses. How would eating the losses come into play a few years down the road, when he starts to show some income? Are the losses permanently lost? capitalized? Are they used to show a pattern of no income, so not really a business intent? Are they used to show a pattern of struggle, so yes, really a business intent?

And, how much weight would be given to the fact that there is sizable investment income for such an individual? (I am likely making up a new scenario here . . .)

Please recall I was responding to a CPA (proxied through his brother) about a tax client. My response to the dentist, had he posted himself, probably would have been different. Absent a long drawn out interview-by-newsgroup, I probably would have suggested he consult a professional -- which he did.

Note I said "zero revenue" is different from, and less propitious than, "net loss". Form 5231 "Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit" is one way to capture the long-term profit expectations.

Thanx, hopefully this one was just an anomaly! ;-)

-Mark Bole

"Gil Faver"

"at least a little interested in making money" doesn't come close to the requirement for having a profit motive.

Seth

"Seth" wrote

We disagree that either the statement quoted above by itself or the whole account as originally presented provides enough information to come to this conclusion.