An activity constitutes a business if your primary purpose for engaging in the activity is for profit and you
are involved in the activity with continuity and regularity. When a writer is actively writing and selling or attempting
to sell his or her work, the writer is considered to be conducting an active business. The writer
reports income and expenses on a Schedule C and pays both income tax and self-employment tax on the net
income from the writing business.
At some point, however, each of us will set our computers and stories aside and no longer actively pursue
our writing careers. We might retire completely when we reach our golden years, or we might choose
to pursue another occupation for an extended period of time before returning to writing.
What happens when a writer retires temporarily or permanently?
The tax rules change, that’s what.
Per the IRS, a sporadic activity or a hobby does not qualify as a business. While income from a nonbusiness
activity is nonetheless subject to income tax, non-business income is not subject to self-employment
tax. Thus, when a writer is no longer actively and regularly engaged in writing, the writer no longer has an
obligation to pay self-employment tax on his or her royalties. Given that the self-employment tax rate is
15.3% of net earnings, exemption from the tax can result in substantial savings.
Reporting for a Non-business Activity
Income from an activity that does not constitute a business is reported as “Other income” on Form
1040, line 21. Expenses related to a hobby or non-business activity can be deducted only up to the amount
of the income. Such expenses are reported as a miscellaneous itemized deduction on Schedule A. Unfortunately,
such expenses are subject to a 2% adjusted gross income floor, meaning that you will only benefit
from such expenses to the extent they exceed 2% of your adjusted gross income.
Is Your Writing Activity Active or Passive?
How does the IRS determine whether a taxpayer’s activity is consistent and frequent enough to constitute
a business? A writer must spend at least 100 hours in writing-related activities in a given tax year for a
writing business to be considered active. A writer who spends less than 100 hours in his or her writing business
would generally be considered passive and would not be required to pay self-employment tax on his or
The special rules that exempt the earnings of an inactive writer from self-employment taxes apply only to
royalties earned on a copyright. If you receive payment for personal services, such as payment on a work for
hire, you would still be required to pay self-employment tax on the income even if you are not actively engaged
in a writing business in the year you receive the payment.
If you are on a temporary hiatus and return to your writing business after only a short break, the IRS
may attempt to impose self-employment tax on income earned during the alleged hiatus. Be prepared to
show that you were truly inactive during the time in question. Be aware that this may be difficult unless you
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