Got a Tax Question?

If you’ve got a question I haven’t addressed in my course or in my book, feel free to ask as a comment. I’ll do my best to reply with the answer or point you toward helpful resources. And I’ll include the question in the next edition of my book Tax Tips for Writers.

3 Responses to Got a Tax Question?

  1. K Furman says:

    Thank you very much for your answer. That’s clear.
    I have another question; this hasn’t been addressed in the book either. If you sell book rights abroad and get a royalty check from which foreign taxes have been already deducted, do you just write in that amount you received (pure income) on your Schedule C or do you write in income before taxes and write in the withheld taxes in the expenses column — I realize this doesn’t really affect the bottom line, but what’s correct in the case you didn’t get any official tax form from the publisher?

    Also: If, say, you get income from a foreign publisher, does it make sense to get tax-exempt status in that country (if there is a double taxation treaty, of course) and just pay taxes on the foreign income if it was US income? I realize, this question might be a bit too specialized. Either way, thank you in advance for your answers. I’ve recommended your book to my friends.

  2. K Furman says:

    Hello, I’d just read your book (the 2014) edition and learned a lot of new and helpful stuff! (Like needing to pay quarterly taxes, hello!) This year is the first year that I would owe more than 1000K on my income and I didn’t pay any quarterly taxes. My first question is – when are the penalties and the interest assessed? If I do my taxes through a software like TurboTax, does it automatically calculate it or would I get a letter from IRS when they receive my taxes in April and see that I hadn’t been paying quarterly taxes for 2013?

    My second question is regarding the hobby rule, and I wanted a clarification for writers who get advances through their agents. As it can happen with literary fiction, you can get a sizable advance one year (that even puts you into a different tax bracket); then the book is published the following year when you are having promotional expenses and living off the advance (but might not be able to show much profit because you are earning out the royalties). Your next big chunk of advance for the next book may not come in another few years. And then again you are whipped into a different tax bracket. So your income can vary from high to close to zero (all this time you’re slowly earning out royalties, but maybe not to cover expenses – on paper-because still living off advance). So how does one manage the hobby rule here? It doesn’t mean that one is not in business if it takes 5 or even 10 years to write the next book and then you get one big chunk of payment for it…

    Thank you!

    • emlynley says:

      Most tax software will calculate the underpayment of tax penalty for you and create form 2210, underpayment penalty. The penalty is the interest rate on the underpaid amount. Since you didn’t make quarterly payments, it will calculate that 25% of the tax was due on the four dates when the quarterly payments are required, and the penalty amount will be different for each quarter. When you actually file the quarterly payments, you are telling the IRS that your income varied over the year, otherwise they assume you made equal profits in all four quarters.

      As for the Hobby-Loss rule, if you can show you are running a business using the key elements mentioned in the book, then you won’t have any trouble. However, if you are spending 10 years writing a book, you should be sure to explain your expenses in years you have no income, and to prove you are making progress on another project. I suspect that if you only write one book every 5-10 years, the IRS may not going to consider it a business, since a business that supports your living expenses would have to be profitable or you would be out of business. The typical definition of business as a going concern is that it supports itself. You should explain in notes in your return why you have multiple years of losses, but be prepared for the IRS to ask additional questions. Be extra careful to document every single expense in the years when you have no writing income.

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