Discussion:Writing a Book/Research Expenses

Although she can clearly prove that it is a for profit activity, she has not received a deal and thus no income at this time.

Her prior CPA had put all expenses on as a schedule C, but as a passive activity, so all losses were suspended. I know this is incorrect - she clearly meets material participation rules.

I intend to take the carryforward passive loss off, and take all expenses and capitalize them as an intangible asset until she actually receives income.

Thoughts? I had talked to a few colleagues, and they agrees this is a reasonable and conservative approach.

How would you quantify the life of the income stream, in the case of a book? I was planning on treating this as a 5 year intangible asset.

Also, 263A mentions qualified creative costs, but says they are not subject to unicap rules. Again, does that require some sort of election?

Here's a website from a CPA at LSU:

Additional Info: http://www.bus.lsu.edu/accounting/faculty/lcrumbley/tax_aspects.html.

ec. 263A. Capitalization and inclusion in inventory costs of certain expenses (h) Exemption for free lance authors, photographers, and artists

     (1) In general
       Nothing in this section shall require the capitalization of any
     qualified creative expense.
     (2) Qualified creative expense
       For purposes of this subsection, the term qualified creative
     expense means any expense -
         (A) which is paid or incurred by an individual in the trade
       or business of such individual (other than as an employee) of
       being a writer, photographer, or artist, and
         (B) which, without regard to this section, would be allowable
       as a deduction for the taxable year.
     Such term does not include any expense related to printing,
     photographic plates, motion picture films, video tapes, or
     similar items.
     (3) Definitions
       For purposes of this subsection -
       (A) Writer
         The term writer means any individual if the personal
       efforts of such individual create (or may reasonably be
       expected to create) a literary manuscript, musical composition
       (including any accompanying words), or dance score.
       (B) Photographer
         The term photographer means any individual if the
       personal efforts of such individual create (or may reasonably
       be expected to create) a photograph or photographic negative or
       transparency.
       (C) Artist
         (i) In general
           The term artist means any individual if the personal
         efforts of such individual create (or may reasonably be
         expected to create) a picture, painting, sculpture, statue,
         etching, drawing, cartoon, graphic design, or original print
         edition.
         (ii) Criteria
           In determining whether any expense is paid or incurred in
         the trade or business of being an artist, the following
         criteria shall be taken into account:
             (I) The originality and uniqueness of the item created
           (or to be created).
             (II) The predominance of aesthetic value over utilitarian
           value of the item created (or to be created).

Thanks for the feedback!

Now if this will be his only book, maybe capitalizing is wise, but for a client of mine who was a sportswriter in a small major league city and who also freelanced and began with a well-praised but remaindered book on a controversial baseball player, we have always put the expense first. Some of his efforts have produced fruit [HBO bought one and screened into a documentary] and some have sank like a stone, but on the whole, the writing it off as we go along method has helped him live his dream.

The other point is that as your husband does his research, he might just happen to write other efforts that sell while on the road: articles etc. How do you allocate costs? Then again, most writers don't have tax experts as their spouse!!!!! Good luck to both of you. No comment on the trailer!!!