Sole Proprietor Question

wrote

That is what you would be, a self-employed writer. You'd have to tighten up your records though, not only to prove the expenses, but that your activity is being done with the intent to turn a profit.

Same for any self-employed person.

Yes.

To a degree, yes. Economics kicks in after a while and you have to give up the sinking ship.

Yes. Be aware though that having large business (writing) expenses being deducted against ordinary income draws attention. If you get audited, you might be on the hook to prove your profit motive.

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net

as an author, you are generally on the cash basis of accounting you need to document your writing activitities expenses incurred in writing a book are only deductible in the year that they are incurred given the hobby loss rules, you should address the profit motive issues ___________________________________

-----> real address on hobokeni or hobokenx

Usually, you get 5 years to start making a profit, before the IRS considers it to be a "hobby" rather than a bonafide business. Corrections invited.

OK. To shift the burden of proof to the IRS that you lack the required intent to make a profit, you have to be profitable in 3 years out of 5. If you lose money 3 years in a row, including the first 3 years of business, the burden of proof is on you and the IRS isn't going to wait two more years if they've already decided to audit you. If you make a profit in 3 of 5 years the IRS may still assert that you do not have the required intent to make a profit in the activity. However, the burden of proof is now on them. Note that in almost all tax audit situations, which are civil proceedings, the burden of proof is on the taxpayer to show the return is correct, NOT on the IRS to show that it is wrong.

"BR" wrote

What happens is that after 5 years of losses (longer for horse racing I believe), the full burden of proof that you have a legitimate business activity (as opposed to a hobby) falls on you. If you have profits in two of five years, then you are presumed to be in a business (the burden falls to the IRS to prove otherwise). We probably all have clients that continue to show losses for more than a 5 year duration, that never have been questioned about their profit motive.

-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net