Novelist with no income in '08 but plenty of deductions. What do I do?

The good news is that full-time University Professors qualify for a deduction of tuition for almost every educational expense. If you are adjunct faculty, you may qualify for the deduction if you have full-time employment as a journalist.

That's a problem. You and I are both supported by a woman! But I can still deduct my professional association dues and continuing eduction expenses.

Expenses directly related to the novel are deductible in 2008 on Schedule C.

Other than what I've written above, more detailed information is needed.

Dick

I thought a book-writer's expenses are capitalized and amortized starting in the year the book is finished or published. Is that way off base?

Stu

Stu, IRC Sec. 263A, which in general requires the capitalization of costs incurred in the production of real or tangible personal property, provides an exemption for freelance authors, photographers and artists. Books are specifically included in the definition of "tangible personal property" for purposes of Sec. 263A, but the Sec.

263(h) exemption allows current deduction of expenses by an individual who is in the trade or business of being a writer, photographer, or artist.

Katie in San Diego

Would I still be considered in the trade, if I had no income in 2008? The drift I'm getting is I do indeed have a large deduction I can take even with no income for the year. I'm still unsure if this means I can also take education expenses as deductions in my case.

Thanks for the clarification, Katie. That's great information.

Stu

Whether you are engaged in a trade or business is a question that can be answered only by taking into account all of the relevant facts and circumstances, not just for the current year but over the longer haul. If you are in the trade or business of being a freelance writer, you can deduct your current expenses under Sec. 263A(h) regardless of whether you have income in the same year. Presumably you will have income next year.

The question is whether your writing activities are engaged in for profit pursuant to IRC Sec. 183. Sec. 183(d) provides that if gross income from the activity exceeds expenses in three of five consecutive years, then unless the IRS establishes to the contrary, the activity is presumed to be engaged in for profit.

Your education expenses may be deductible with reference to your employment as a college professor.

Katie in San Diego

I came to learn this the hard way. Susan had expenses over a four year period when she was writing a Women's Studies book. When the royalties came in, there was no way to deduct the expenses.

To paraphrase Katie, writing books comes under the hobby rules.

The OP wrote that he had ZERO 2008 income. So I suspect he is no longer a college professor. There may also be an issue of whether he was full-time or adjunct. But if he has income in the past as a writer or even unpaid publications (which are the stock and trade of academics), his MFA writing course may be deductible as continuing professional education.

As a retired full-time university professor, I wonder how far I could safely push the free-ride for academics.

Dick

I'm sure you're right, but I don't really understand.

Why shouldn't there be a NOL carryforward from the years in which expenses occured, to the years that royalties came in?

(Recognizing that it's four years, not three, so there may be more effort in justifying it.)

Steve

Are you sure? If you have a loss in greater than 3 out of 5 years, your endeavor may still be be a business if you had the intent of making a profit. You have to have the books and other things to prove intent.

Yes, I am sure. The IRS position is the failure to make a profit creates the rebuttable presumption of a hobby. Your rebuttal comes from having "the books and other things to prove intent."

Dick

In cases similar to this I always like to cite the Ranciata case. Ranciato? sounds like.......

ChEAr$, Harlan Lunsford, EA n LA

So is the sequence of events something like the following: With reported losses years 1 through 4, the year 4 return gets examined, and the year 4 losses, along with carried-forward losses from years 1-3 get disallowed. This forces an amended year 5 return, on which there were revenues, to delete all the carried-forward losses from that one.

Is that approximately correct?

So TP would have been better off not having any losses in years 1 and 2 ... if it *were* a hobby those years, instead of a business, that would have enabled the year 3 and 4 losses to be part of a business and be allowed. Am I mistaken here?

Can year 1 and 2 be amended to this effect? Hobby, that then turned into business in year 3?

Steve

Ranciato was a retail pet store that after being profitable for years went into the tank. Tax Court denied deductions. Appellate Court remanded for further consideration. Tax Court reconsidered and again denied deductions. Does not sound like a good cite to me.

Dick

In article , snipped-for-privacy@speedymail.org (Steve Pope) writes: | Dick Adams wrote: | | > snipped-for-privacy@yahoo.com wrote: | | >> snipped-for-privacy@panix.com (Dick Adams) wrote: | | >>> I came to learn this the hard way. Susan had expenses over a four | >>> year period when she was writing a Women's Studies book. When the | >>> royalties came in, there was no way to deduct the expenses. | | >>> To paraphrase Katie, writing books comes under the hobby rules. | | >> Are you sure? If you have a loss in greater than 3 out of 5 years, | >> your endeavor may still be be a business if you had the intent of | >> making a profit. You have to have the books and other things to | >> prove intent. | | >Yes, I am sure. The IRS position is the failure to make a profit | >creates the rebuttable presumption of a hobby. Your rebuttal | >comes from having "the books and other things to prove intent." | | So is the sequence of events something like the following: With | reported losses years 1 through 4, the year 4 return gets examined, | and the year 4 losses, along with carried-forward losses from | years 1-3 get disallowed. This forces an amended year 5 return, | on which there were revenues, to delete all the carried-forward | losses from that one.

Does the amended year 5 return also get to drop the self-employment tax that was either due or would be due without the carried-forward losses?

Dan Lanciani ddl@danlan.*com

Maybe I need an update then. Didn't know Tax court had again denied deductions. All of us were agog over this case at the time,which may have been before the final TC considerations.

But still the IRS has a checklist, sort of like the old 20 questions for subcontractors/employees which help clarify facts and circumstances.

ChEAr$, Harlan