The Common Tax Deductions Authors Forget to Claim: Startup Costs

When you start the path to becoming an author one rather painful truth is made very clear: writing is hard and it takes time. Now, I realize that this isn’t a universal truth, many authors don’t hit the same walls I do, but it isn’t uncommon either.

I’m not the first one to invest in writing software years before there will be a finished product and long before I even knew those kinds of things should be tracked as tax deductible. So now, as my debut creeps ever closer to publication and, in theory, bringing in revenue, I have to figure out what my startup costs are, and if I can still deduct them once I formalize my currently unnamed author business.

What are startup costs?

Startup costs are expenses incurred before your business officially started. The IRS allows businesses to deduct up to $5,000 of startup expenses in the first year of official operation and amortize the rest over time. There is no strict rule on how far back in time you can go in looking for these expenses, but they need to meet two qualifications: 

1. The expenses were ordinary and necessary to start the business

2. They were incurred prior to the business began operation

Feel a little nervous? Don’t be, as a new author, this is an expected problem, and you’re in very good company. Mine to be specific. I’m very unsure of when I purchased my writing software, or how much it was. 

The lesson? 

Keep track of your expenses so when it comes time to tell the world, “I’m an author and a legitimate business.” This kind of little problem won’t build into something bigger, or you miss out on the tax deduction altogether. Just track everything in a spreadsheet with the date, amount, vendor name, and purpose. That will be a solid jumping off point. 

What is an expense?

Expenses are a cost incurred to run your business and generate revenue during a specific period. Deductible expenses or “write-offs” lower your taxable income and therefore lowering your tax obligations.

Here are some common expenses that you are keeping track of. Ideally in a business bank account kept separate from personal finances.

• Editing costs: Anything you pay an editor, book coach, or sensitivity reader is considered a professional service and is generally a deductible business expense.

• Cover design: Another professional service that is 100% a business expense.

• Writing software: Either the monthly subscription or the one time fee, both count. In fact, if you pay for extra cloud storage for your books, that counts too. However, I would encourage you to not mingle personal information in that storage. Examples include Dabble, Scrivner, Atticus, ProWritingAid, Grammerly, Plottr, Google Drive and Dropbox.

• Social media advertising: If you pay to promote a post on Facebook, that counts as advertising. Using Amazon? (Because who can avoid it) anything that boosts your listing counts too. TikTok, BookBub, Google ads, are all advertising and marketing expenses.

• Education and Conferences: Education is deductible if it maintains or improves skills for an existing business. Conferences, workshops, and courses that help improve your writing or publishing skills are generally deductible as business education.

• Bookish events: This one is a little tricky. The IRS rules say travel or events must be primarily for business purposes.  If you’re paying a vendor fee to sell your book, this always counts. If you’re attending an event primarily for networking or promoting your work, it may also qualify. However, if it’s mostly recreational or fan attendance, it shouldn’t be used as a deductible. 

  • A good rule of thumb is to imagine trying to sell an expense to a cranky IRS agent, and I think you’ll understand why that feels a little iffy.

• Printing costs: Printing books in bulk is not immediately deducted as an expense. Instead, those books are recorded as inventory (an asset) and the cost is moved to Cost of Goods Sold as the books are sold, where it then counts as a deduction. - Yes, this is even more complicated than it sounds here.

• Software: If you use software to track your inventory (Sortly or Zoho Inventory), manage your website, bookkeeping or a point of sale system, all of those should be tracked and deducted.

• Home Office and Internet Service: These ones are interesting, but you can deduct a certain amount of your mortgage and your internet by business usage. For the office, you have to have a dedicated space that is only used for business. Have a little library in a spare bedroom? You can deduct the square footage, as long as you swear to never get cozy and read books in there. Bad author, bad! haha!

  
  

Keeping track of these expenses will help you understand your finances better, keep you in compliance with the IRS and keep your tax bill as low as possible. A simple spreadsheet and a business bank account will prepare you for when the story you worked so hard on turns into a bestseller!

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Not sure if something is a business expense or not? Fill out my contact form and we can chat about it!

General disclaimer: Jenny is a bookkeeping professional, but cannot offer legal or tax advice. Any information here is intended to help facilitate conversation with relevant experts.