I'm a writer. I spent about $5,000 on books, stationary and office supplies and software, in Tax Year 2008. But I earned no income from writing in Tax Year 2008 and probably will not until the 2010 Tax Year.
So ...
Can I take these deductions as a business loss somehow?
If so, do I just roll them over until the year comes when I have income or a profit; I suspect I will have a similar situation for Tax Year 2009. Or do I amend for 2008, and take another loss for 2009?
My spouse is a very high earner, mid six figures. Will our joint household income figure be so high, it means I can't take or qualify for this business loss deduction?
Lastly, is there anyway to wrap education expenses into these business expenses and thus loss. One accountant told me our income was too high for an educational deduction on the standard itemization form.
Yes. If you intend to be a profitable business, then you can take a deduction. But the IRS may view the activity as a hobby, in which case the expenses are allowed only as an itemized deduction subject to the 2% of AGI limit (only amounts over 2% of your income are deductible on Schedule A), along with other complicated restrictions, which often makes the deduction worthless.
Search the internet for terms like "business versus hobby" and"how to deduct hobby expenses" to read more.
To prove your activity is a for-profit business you have to keep businesslike business records, separate checking/savings accounts. And you generally have to show a profit in 3 of 5 years.
Good thing you don't have meals and entertainment expenses. If I were an IRS agent, I'd be very curious about these.
You have to claim the loss on your 2008 return. If your net income is negative, you have a net operating loss (NOL), and you can carryback or carryforward the loss to future years. This is complicated though.
You always get to take the business loss. Since your spouse is a high earner, you won't have to worry about the NOL.
Education credits for you would likely be the lifetime learning credit, which is not available if your adjusted gross income (that is, net gross income minus 401k contributions, FSA, etc) is over around
100k. You have to read the IRS publication to get the exact number. The tuition and fees deduction is available to higher earners, but still ends at around 160k of income.
You can deduct educational expenses as a business expense. If you do this, don't claim a lifetime or tuition and fees for them. However the IRS has a rule that expenses you incur to enter a new field are not deductible, but after you've entered your field they are. What kind of courses are we talking about here?
Aren't there some relevant regs that relate specifically to artists and writers acting as a business. I was an established journo for 20 years, been a writer in the past; this is clearly not a hobby, and I intend to make money from it, someday. Is there a different for for artists and writers working as a business?
(Btw the education stuff, like most meals and entertainment, sounds extremely aggressive, and the household AGI is above the 160K, so for deductions I'll stick to pretty solid ones ...)
Others may know this better, but you're right, there are special rules for writers. Under §263A certain business expenses must be capitalized, meaning you can deduct them all when spent but have to write them off over time.
Writers have an option to be exempt from that rule. I don't remember all the nuances at the moment, but you should look into it.
Section 263(h) exempts individual writers/artists (ie. freelancers) from having to capitalize their costs. A writer might have to buy paper, pay fees to attend conferences, pay mileage to attend these conferences, and they would be deductible right away because section
263 does not apply to them. Of course, if the individual buys a camera to take pictures, the camera has to be depreciated because it is ordinarily not deductible, although section 179 might allow them to write if off at once. Though when there are no profits, as is the case here, section 179 (and I think bonus depreciation) is not available.
Technically, I disagree: Section 179 treatment IS available - but it forces a carryforward which may be deductible in full in a following year (as the "business income" limitation dictates).
You would complete whatever forms apply for your filing status. An individual reports their business income and expenses on Schedule C. Other forms and schedules apply, such as a 4562 for depreciation of equipment and furniture, 8829 for business use of your home, and there possibly are others depending on your specific circumstances. There may be specific forms for state reporting, so don't overlook your state filing.
I'd suggest consulting with a CPA or EA in your area to get some specific topical advice before the end of the year. Then you'll know what is deductible, what records to be saving, etc.
Section 179 is limited by TOTAL trade or business income, not just the profitability of the specific activity. Also, salary from a day job is a part of total trade or business income for a taxpayer.
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