Book Beat Babes

Book Beat Babes

Friday, October 25, 2013

Got IMP?

Before discussing how to distinguish between a business and a hobby in terms of how to report or categorize any income received from writing, we first have to understand the concept of Intent to Make a Profit or IMP.   Okay, IMP is my acronym but I think it’s perfect.  Get it- IMP!  Yes, I didn’t become a comedian for a reason but I do like to add comedic elements to my writing, including for series topics such as this one.

So, to truly understand the concept of intent to make a profit, let’s consider a more traditional business scenario such as opening a store, whether online or a brick and mortar location, or both.  If you wanted to open a store to sell shoes, most people would believe that you would want to make a profit, even though statistically three out of five businesses fail within the first three to five years.  BUT, because you opened a store, people are more willing to believe that you mean business.  So how do you show this same intent to make or profit, or mean business, with your writing?

There can be some clear signs that you intend to make a profit so let’s get those out of the way first:

-          You have a book deal/contract, especially for more than one book.
-          You’ve already published a book (self-published or traditional) and are promoting that book while writing the next one.
-          You are conducting your writing efforts as a business – okay we have to come back to this one in more detail.

Whether you fall into one of the categories above or not, in order to prove you intend to make a profit and that you are conducting your writing as a business, you will have to keep thorough and detailed records to demonstrate this to the IRS and even the state revenue agencies when necessary.  In some jurisdictions, the county and city levels also want to know about your business, so beware and research licensing and business registration requirements for where you live and write.

But what if you do not intend to make a profit?  What if you are truly just writing as a hobby but you receive payment – either cash or bartering – and just don’t want to start a writing business. You are just doing this for fun or to help a friend who owns a small business, but occasionally somebody pays you for your writing product.  What then?

Well, you’d think it would be simple, but it truly just depends because if you don’t intend to make a profit but end up doing so for three out of five years then the IRS can consider you a business and you will then have to pay the appropriate income and payroll taxes required of all businesses, even independent contractors.

Perhaps you’ve noticed that the three-out-of-five rule comes up often for many different aspects of the tax code and financial considerations.  I’ve already talked about it for two scenarios so far just in this blog and we’ll discuss this more at length in a future blog.

Okay, back to IMP.  To prove IMP you have to walk, talk, breath and act like a writer who means business whether you make any money or not, which as I’ve said before, is not uncommon in the beginning.  So, what do real writers do?  Well, think about it – they write, they submit, they publish, they network with other writers, they connect to readers – you get the idea.  They don’t sit around and just write hoping that a publisher will come and knock on their door because their mother or dear meddling aunt told them to.  Just like the shoe store owner, writers who have a business plan (oh, another thing we’ll talk about later) produce or have a product to sell and take the necessary steps to sell that product to customers.

One of the things I greatly encourage all writers to do is create a writer’s journal/dairy/blog – whatever you want to call it – to track everything they do related to their writing.  In my opinion, this is not only important to prove your IMP but it also goes a long way to support your material participation in your writing business, should you need to prove it. 

Ah, another concept that’s foreign to most folks who decide to put pen to paper or digital key strokes to a computer screen.  Just like a well-developed plot line, material participation is critical to prove that you mean business with your writing should you decide to take that leap from amateur to pro.

So, if you want to be considered a business with your writing endeavors then get your IMP on and start – and maintain – that writer’s journal/diary/log or whatever you want to call it to prove your intent.


  1. I consider Google my writing journal. Since I'm constantly online, that's where an IRS agent could find thousands, or maybe millions by now, of pieces of evidence that I've been trying like crazy to sell my books. I also have my statements from Amazon, plus I also pay sale tax every year.I'm self-published now, so I'm not actively seeking a publisher. I'm my own publisher.

    Morgan Mandel

  2. Great advice, Terri. Lots to think about