Things That Make Me Panic: Hobby Loss Rule
Sometimes research can be a double-edged sword, regardless of how enjoyable I find it to be. Part of this writing journey has been researching the publication process. It wasn’t long into this research that I came across the Hobby Loss Rule, something that instantly threw me into a panic.
In short, from my understanding, if you don’t show a profit in at least three out of the last five tax years, the IRS will decide that your writing business is a hobby instead of a business and retroactively change your tax filings. This means going back and changing your taxes, paying more as the deductions you took are no longer applicable, and an increased risk of an audit.
I’ve been panicking for months over what to do when it comes time to publish. Should I risk it and go the business route, or play it safe and keep it as a hobby? What would happen if years down the line there is a profit and the business route shows itself to be the right decision? How would that affect past releases? It was all so much and had me spiraling… until a few weeks ago.
I often join the writing sprint live streams hosted by Jenna Moreci on YouTube. She has some of her author friends join her on these streams where they answer questions about the writing process. So I asked how they navigated this terrifying rule with their debut novel.
None of them had heard of it before.
It might seem like they weren’t able to answer my question, but I feel that’s far from the case. To me, that says that as long as I follow their example when it comes to marketing strategies, that there should be little to no risk of having the IRS change my tax status. It was an enormous relief to say the least.
So, what’s going to be changing? For one, I’m working on getting a newsletter started. That means creating a privacy policy, which I need a PO Box for. I’ll also need to get my social media up and running. I have a few ideas for YouTube that I hope will work out well, it’s just a matter of learning some new programs. I think while my debut is out with the first round of beta readers, this would be the perfect time to focus on all the changes that need to be made.
