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I decided, after realizing just how much I spent on contests, at festivals, on books, etc, that I'm going to try itemizing my taxes this year to write-off my writing as a business expense.
Does anyone have any experience with this? Any pitfalls to avoid or helpful links?
I have an S-Corporation (Inc.) of my production company (I've also produced my short films) and through that I'm able to write off expenses against my personal taxes. This is one way to do it (but yes, you have to pay to get incorporated and there's a minimum tax).
There may also be a way to do it straight to your personal stuff, but there's a line of where it's considered a "hobby" - I'm not sure how that's determined.
I won some money in a contest a few years ago (before I formed my LLC). I listed the income as a business expense and wrote off the contest fees, mailings,... You can have losses for a company (out of 5 years you can show losses for 3? but you have to show profit for 2? out of the five - I'd have to look up the number of years to show profit/loss). I also have a company and I do film-related stuff for others for a fee. Like Irin I've produced my shorts and I'm on imdb. But without a company and without contest winnings you would be on very thin irs ice.
Check out Scott Rubenstein's "How to Write Your Script and Deduct the Expenses Off Your Tax Return." It's from the Screenwriting Expo Seminar Series #032. Scott covers all the bases. I believe it's available online and at the Writer's Store in Santa Monica.
And, that DVD will only cost you $69.97. Save the receipt.
Here is a great overview for the IRS's web site.
As any experienced lawyer, accountant or auditor will tell you regarding the question of whether you can deduct your screenwriting expenses or whether your activity is a hobby:
Paula, I think I paid ten or twenty bucks for the DVD. $69.95 is the John Edwards tape.
The 5-pack with his DVD is $69.97. Just his is $15 and the link is here:
I'm thinking about getting it. My biggest question is if need a big profit this year to deduct? Or any profit for that matter.
I looked through "IRC § 183: Activities Not Engaged in For Profit (ATG)", but I'm still more or less at a loss.
Thanks for all the great comments.
Bottom line: Seek professional guidance. But here is a synopsis of some objective factors considered to determine your "profit motive." My New Year's Resolution is to keep better records and get a separate "entity" for screenwriting, then do an honest evaluation of these factors:
Manner in which activity is conducted:
a. Is there a legitimate profit or gain motive?
b. Are complete and accurate books and records maintained?
Taxpayer's or advisers expertise:
a. Does taxpayer have prior expertise in the business?
b. Does taxpayer seek advice from qualified advisers?
c. If adviser's advice is not followed, are reasons documented?
Time and effort:
a. Does taxpayer devote substantial time to the activity?
b. Are others employed to carry on the activity?
Is there a reasonable expectation of asset appreciation (in lieu of operating profits?)
Has the taxpayer previously turned an unsuccessful business into a profitable one?
Has the activity previously generated significant profits?
Are profits substantial in relation to any losses and the taxpayer's investment?
Is the activity a meaningful part of the taxpayer's overall sources of income?
Do profit motives outweigh any elements of personal pleasure or recreation associated with the activity? NOTES:
1. While these factors should be considered, other factors not listed may also need to be considered. No single factor is determinative, and the final decision does not depend on the number of factors indicating a ''for profit'' activity versus the number indicating a ''not for profit activity.''
Here's my follow up: This was completely worth the effort.
Thanks Martin for suggesting the DVD, it was a great help.
My day-job office had some people come in and assist us with our taxes, so you could say I used a professional, but I told the professional to use a schedule C (which I learned from the DVD) and I'll be getting back significantly more than I would have otherwise.
Lessons learned: you do not need to make money as a writer to do this, you do not need to set up a "company" or the like to do this, you can spend as little as $1 on writing and still have it deducted on a schedule C--no minimums like normal itemizing, you need to treat your writing as a career and not a hobby and so will the IRS, this is all completely legal and worth the effort.
I'll be doing this from now on. Thanks to all who posted for their advice.
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