GET CRACKING

You might want to figure out how to make money from your writing activity. Try to have a profit. I know there are a lot of expenses. The cost of belonging to the League of Utah Writers or to some other writing association or group. The cost of classes you might take at the college or university or online. The fees you might pay to attend a writer's conference or workshop. The costs of traveling here and there. The research materials you purchase. Paper. Ink. It all adds up, and for you to have a profit you have to have revenue that exceeds the sum total of all your expenses. And to have revenue you have to have something to sell. What do you have to sell? Your good looks? If yours are like mine, forget it.

Every writer should make a written plan setting forth how they plan to make a profit from their writing. Do you have one? Get one. Follow it and revise it, as necessary. You have to revamp your plan and tell you make some money. If you keep on doing the same old thing you will usually get the same old results. If you keep writing the same old material and it gets rejected, do you keep on writing the same old material? Or do you change it? You change it, of course. You have to keep on revamping your plan until your make money or decide that you can't make money by writing, that it's not your thing.

SEDGWICK SLICK

Being a smart aleck with the IRS won't work out quite like it did for Mr. Sedgwick Slick, the phantom of folklore. Sedgwick, a handsome young man, appeared for his IRS audit with his buddy, Barney. Introductions proceeded. Alears introduced herself as the auditor.

After reviewing Sedgwick's records and considering information received from an informant, Alears confronted the good-looking Sedgwick. "Hmmm... Mr. Slick, I'm sorry, but it's plain to me that you're living well beyond the income you've reported on your return. Looks to me like you owe at least four grand in additional taxes for the income you have omitted."

Sedgwick answered, "Please, call me Sedgwick. Gambling's my game. I never lose when I make a bet. Let's say I had a good year."

Alears gave Sedgwick a skeptical stare.

"I see you doubt me," said Sedgwick. "I'll show you, if you want."

Alears asked, "What's on your mind?" She was, after all, an auditor, curious and inquisitive by nature.

Sedgwick smiled broadly at Barney, and then told Alears, "I'll wager 2,000 bucks against what you say that I owe that I can bite my own eye."

Alears wondered what the catch was, but said, "That's not possible. You're on." If she lost, she could adjust her report even though it wouldn't be right.

Sedgwick Slick removed a glass eye, slipped it into his mouth, and parted his lips, revealing the eyeball resting between his teeth.

Alears swore under her breath.

"Double or nothing?" Sedgwick said. "I'll bet I can do the same thing with my other eye."

Clearly, Sedgwick Slick wasn't blind. Alears needed to get out of this predicament. "You're on," she said, deciding that such a feat was impossible.

Sedgwick popped the artificial eye back into its socket. Then he removed a set of dentures, taking them in both of his hands, and manipulating them to nibble at his seeing eye.

Alears almost swallowed her own tongue. Now she was in real trouble. This whole thing had put her job at risk, and she felt horrible about her ethical lapses. She felt sick to her stomach.

"Okay, okay," Sedgwick said. "I see that I've upset you. I didn't want to do that. I'll go double or nothing with you again. This time I'll bet you $1,000 I can stand here" --- he slapped her desktop --- "and take a whiz into your waste paper basket over there by the door and never get a drop anywhere in between."

Alears had no idea what to do. She analyzed the situation as only an IRS auditor could. Her job was at risk. This crook was about to get away without paying his taxes. And there was no way on earth Sedgwick Slick could pull this one off.

"Okay," she said. At the very worst, she figured, if someone noticed the spectacle she could claim Sedgwick Slick was entirely insane. People audited by the IRS often acted in very strange and crazy ways.

So Sedgwick jumped onto her desk, quickly aimed, and let loose. He utterly missed, getting it all over. Sedgwick grinned.

Alears smiled, too. Thank goodness, she thought. Then she noticed Sedgwick's friend, Barney. He had turned green and looked ready to vomit.

"You okay?" Alears asked.

"No," Barney said. "Before we got here, I made a bet with Sedge. He bet me $20,000 that he could take a tinkle on your desk and you'd be happy about it!"

ALEARS AGOG

Alears Agog is a creation of my fantasy. I used her in my tax book, Making Expression Less Taxing, a Freelancer's Tax Resource. She is what is known as a tax auditor at the Internal Revenue Service. Now, I'm not certain that's the terminology they still use for tax auditors today, because I've been retired for a couple of years.

I was with the Internal Revenue Service for over thirty years, and that is the terminology we used those years for people who audited individuals and small businesses in the offices of the Internal Revenue Service as opposed to audits conducted at taxpayers' places of business or residence. (The people who did the field audits were called revenue agents.)

Of course, during the term of George W. Bush, a lot of traditions went by the wayside.

I worked for a few years as a tax auditor myself, from about 1974 to 1979.

I chose Alears's name for a particular reason. Successful tax auditors are incredible listeners. They listen to what taxpayers say to them and take voluminous notes. They are all ears. Their ears are open, agog! I know that agog usually pertains to vision. Eyes, not ears, are usually said to be agog. Isn't that correct? Maybe not. In any event, agog means eager. A good tax auditor is eager. The auditor is full of keen anticipation. Why?

I guess there are a few reasons. They are trained to catch mistakes and errors. Isn't it fun to find out the mistakes of others and be able to do something about it? Well, for many people there is. Beyond that, they are always looking for crooks. There is a sense of self-righteousness and the same level of enthusiasm law enforcement workers often have in catching criminals. Perhaps, for some there is a degree of maliciousness in their machinations. However, my experience is that most tax auditors are simply conscientious workers trying to do the best work they can for their employer with a keen sense that they are civil servants.

Every taxpayer who claims tax benefits against their income must consider what their chances of being audited are. Why is that? Because not every claim you might make as a taxpayer comes clearly within the terms

Let me give an illustration. I spoke at a writers' workshop sometime ago. One of the blooming authors there asked me if he could deduct the books he purchased to read for both research and/or to make himself more proficient as a writer, following the admonitions of many experts on writing that he should read a lot. In other words, not all of the books that he had purchased were on writing or directly related to research for a project he might be working on. They might be just the normal books, magazines, and newspapers that anybody else might read just because they were popular

Could he deduct their costs? What do you think?

If he got audited, a good auditor like Alears Agog probably would question his deduction of some or all of those purchases. They're a couple of reasons, but the main one probably would be that the law doesn't allow an individual to deduct personal living expenses. It does allow a taxpayer to deduct ordinary and necessary business expenses. There is a good argument for saying the cost of the books is a personal expense and a good argument for saying the cost of the books is an ordinary and necessary business expense. There is ambiguity.

The subject writer's situation differs from somebody that works as the proprietor of a restaurant when it comes to deducting the costs of books. There is less ambiguity with respect to the restaurant operator and if such individual attempts to deduct the cost of his John Grisham books he or she will probably fail if audited. On the other hand, if a writer deducts deduct the cost of his books written by John Grisham he or she may well succeed. Or fail.

THE BORING ACCOUNTANT

Accountants and CPAs are often characterized as misers. A better word for them is perhaps frugal. But there're stories. For example, there's the story about the refreshment stand at the beach

A customer walks up and orders a cold one at the refreshment stand. The vendor working there asks if the customer wants to try a new brew made locally, saying it'll only cost him a buck instead of the usual three bucks for a cold one. So the customer looks around and notices several people with the new brew, except for one guy who it appears has only a glass of water, no ice, not even a lemon-slice. The taste-testers seem all happy and contented with their refreshment, while the guy with the water seems quite dour.

So the new customer decides to try out the new brew, and he really likes it, and he goes back for another one. As he stands there waiting he asks the vendor, "Do you know what's up with that guy over there? He seems so sullen, and I notice he doesn't have one of these new brews like everybody else does."

The vendor smiles and shakes his head. "That Skippy Flint. He's a CPA --- actually does my taxes for me --- and he has a reputation as a great accountant. You get audited by the IRS, you want to Skippy Flint with you. But he knows that at five I offer these new brews for free for an hour, and so he's waiting until then."

While it's definitely a stereotype to characterize CPAs and accountants like the story does --- I've known some of these types to be very exciting individuals, like Sid who rode his bike across the United States from coast to coast or David in Idaho who grew marijuana in his house --- it is probably a good idea to try in your writing or artistic endeavor to utilize great care in keeping your books and records and being thrifty.

A BUSINESS PLAN

A few postings ago I mentioned Burnett Outten, the cold-fusion guy. What a hoot! Bernie's circumstances were "singular." No doubt about it

Mistakes can cost you taxes and penalties. It's like a conservative president who tries to deduct right-to-lifers as some kind of tax grace. It just ain't happening. Not anymore, at least. As a nation, we'll probably have to write off the losses of Iraq, big time, but it won't benefit you. No, it will cost you. And me. Everyone. The only thing to do is to learn from the mistake. To utilize it to be smarter and do better in the future. The same is true in your activity as a writer or an artisan.

You need a written plan. Your plan should be to make money, to profit from your expression, whether your expression is in words as a writer or in art or in some other medium. Make some money! The cliché says that the best laid plans of mice and men often go awry. Your plan should be dynamic, not static. It should change, not with the wind, but based upon your operating results; that is, it should change with what happened when you followed your plan but it didn't result in a profit or in an adequate profit to suit you

Your new plan should supplant your old one only if you're convinced that something new can do better than what you were doing before. A plan needs to involve both finances and operations. It should be influenced by the opinion of experts who have earned profits in similar businesses and activities. You should be changing things for efficiency's sake, for the sake of reaching your market, because you think you can sell a new product for greater amount with less effort. Plan and revamp. Keep going until you make money or decide you can't make it. If you keep losing money it becomes increasingly difficult to sell the idea that you are in a trade or business. At some point it becomes almost impossible to convince the IRS cynics.

When I speak to writers --- I haven't had any engagements to speak to artisans yet --- I sometimes feel like the schoolboy being shaken down by bullies in front of the school who want my lunch money. I don't have any to give them. I have no advice about the art of writing; I am not qualified to help them. I don't feel confident that I am at that level as a writer that I should be giving advice about writing above and beyond what I give in my critiquing group where the people know and accept me.

Anyway, it's like I'm standing there with my pockets turned inside out and I have to say that all my money is in taxation know-how.

Every writer must look in the mirror. They must face themselves truthfully and honestly there. Just like Snow White's mother-in-law --- Was it Snow White or Sleeping Beauty? My memory is so bad. --- they must assess their beauty in terms of their craft in the mirror. And what they see there might --- probably will --- let them know that someone else in the realm is looking better, sometimes much better, than they are. Now, they might not like that, denying it for a period of time and then grousing about it and trying to take revenge or manipulate the matter. They might even tell the mirror it has no room to talk, that they've seen better looking mirrors, but eventually they must, at the risk of the rest of the fairytale and how it turned out, accept their place in the writing craft. They will have to work harder.

Not only must writers accept their place in the writing craft and the fact that they might have to work harder, but they must also face up to the notion that they have to, if they are serious about writing as a profession, conduct their writing as a business. Not all businesses make money. Especially during the startup period.

I often wonder about the early years of successful writers, people like Steven King or the latest phenomenon, Stephanie Meyer. During the period before their careers as writers took off, they must have suffered losses . I wonder how many of them claimed losses relative to their writing on their income tax returns during those early years before the profits started coming in.

Anyway, in future postings I will be telling about a few writers that claimed losses in their early years as they began writing and then eventually got audited by the IRS.

Taxation isn't the most exciting topic. Most people involved in it have accountant-like personalities, often they are stereotyped as introverts. It reminds me of the question: how do you identify an extroverted accountant? Answer: When he talks to you he looks at your shoes instead of his own.

Incidentally, his shoes are spit-polished. Or not.

BURNETT OUTTEN

Figuring out if writers and artisans have a trade or business and can benefit from corresponding tax graces to reduce income taxes is often a mystery. There is often, especially at the outset of an activity, ambiguity as to whether or not sufficient evidence exists to say that the activity is profit-motivated and, therefore, a trade or business.

Some years ago --- probably before many of you were born or can remember --- there was a cold-fusion fiasco. Some guy at a University of Utah thought he had figured out how he could produce lots of energy cheaply without a much energy using a process they termed cold fusion. It turned out a fluke, but at the time it was fashionable to try and figure out how cold fusion might work.

May I introduce Burnett Outten, Jr.? (I wish I had met him in person; his story is so intriguing.)

An agent or an auditor at the Internal Revenue Service, it appears, conducted an audit subsequent to Mr. Outten's failure to file his income tax returns from 1972 to 1979. Of course the IRS official proposed that Mr. Outten owed significant additional taxes and, of course, penalties. Mr. Outten disagreed. Surprise, surprise.

Burnett, it seems, owned an interest in a metals manufacturing concern of sorts. When he met with the IRS and then again when he found himself in court before a United States Tax Court judge, he claimed that the company conducted atomic energy research. Not only that, he claimed that the company had succeeded in producing cold fusion in such experimentation. However, he admitted that he, as chief researcher and experimenter (as in "only" researcher and experimenter), hadn't realized that the nuclear fusion had occurred in a 1951 experiment until fully ten years later, in 1961. He claimed, also, that the company repeated the 1951 experiment with success again in 1971. Burnett, however, never explained why such a valuable process was not patented.

Burnett theorized that the world was created by cold fusion, a juicy and tantalizing religious twist to the story. The documents he filed with the court went on and on about experimentation coupled with religious freedom, including a political history from the toime of Thomas Jefferson to Ronald Reagan, various citations from the Bible, and reports from the Atomic Energy Commission.

You might have guessed it by now, but Burnett argued that he shouldn't owe any taxes because, despite his alleged fantastic discovery, his company hadn't made any money from it yet. In fact, it had big losses (read that in the millions of dollars) that would offset any other income he might have had. In other words, he wanted to exercise the grace granted under section 162 of the Internal Revenue Code to escape taxation

Attorneys for the government argued that there were a plethora of problems with Burnett's arguments, allegations and protestations. The Tax Court judge, it seems, focused on only one : profit motive. In essence, the judge said that the likelihood Burnett had a profit motive was about equivalent to the likelihood that he had discovered a viable cold fusion process.

The moral of the story for writers and artisans: even if your expressive product is along the lines of the fantastical, is science fiction or something experimental, new age or avant-garde, make certain that the way you conduct that activity and your recordkeeping is not. Make certain that that the business aspect is grounded in reality. Ask is this ordinary? Make certain it is necessary. More about that later.