Sunday, February 22, 2009

Plan, plan, plan on it.

Almost everybody wants to write, don't they? Doesn't just about everybody think they could write a novel? Or a memoir? Or some kind of nonfiction book on their expertise

And I suppose it's true that everybody could write a book on something. Not that it would sell or that anyone would be interested in it. It's easy to dream about doing it, but it's hard to make a plan and then live by it and get it done. For a long time before I retired I thought I could write a book. It all started when my wife's cousin left her husband. It's her fault.

Bless her.

Betty (names have been changed for the standard reason given) left my fraternity buddy, Bob, who had become her husband for a polygamist. They had three kids by then and she planned to take them with her too. I felt so badly for Bob, who I could tell loved his wife and his children more than anything.

It was too difficult to wrap my mind around, so after my wife and I got over spying on her with the guy, I decided to write a story about it. It all eventually transformed itself into a story about some Catholic gal from the Midwest who left her spouse for a Western polygamist. So for me writing a novel started out quite haphazardly . . . unplanned. From that initial beginning, I started getting more and more organized and making more and more plans.

Anyone who wants to make their writing business better needs a plan. And such a plan shouldn't be nebulous. It should be written. It also ought to be malleable, dynamic, and able to adapt to the situation.

The United States Small Business Administration has a section on making business plans. It is also viable to search Google to find plans for writers and freelancers.

Your business plan and the Internal Revenue Code (IRC) will have something in common. Every time you reread your plan, just like the Congress reading the IRC, you'll find something you want to revise. Something you think you can make better. Something that will increase the chances that you will succeed and be able to make money in your writing activity. Your business plan should be a work in process, a series of actions, with changes when needed to bring about results.

Plan on it.

Saturday, February 21, 2009


Many writers who have written for quite a while but haven't had much success at making a profit ask me how long they have before they must make a profit. Most of them have heard of the presumptive rule that if you make a profit a couple of years out of five you're home free. Almost everybody that's a novice misunderstands the presumptive rule. They seem to believe that it's an absolute rule. That unless you make a profit two of five years, you're out of luck. But it's not. It says nothing about how long you have to make a profit to have a valid profit motive. There is no absolute rule to that effect. The presumptive rule just says that if you have a profit two of five years, IRS will assume you have a profit motive.

So how long do you have? Far be it from me to say with exactitude. That is not the nature of taxation or of law, for that matter.

John Ellsworth had losses for thirteen years. Big losses. They ranged from over $21,000 to over $74,000. They probably averaged around $55,000 per year. He wasn't a writer, though. He was a cattle breeder. And it wasn't as though he didn't have revenue from his activity. Beginning with the third year, he had substantial gross profit. It's just that his operating expenses above and beyond the costs of purchasing cattle exceeded his gross profit.

Another crucial factor in Ellsworth's case is that he was getting back into cattle breeding after having been successful in it in his earlier life. He was quite old --- I believe 65 --- when he entered into this thirteen-year stint of substantial losses. The court was convinced that it takes about 10 to 15 years to develop a breeding herd with the superior strain and of substantial commercial value. They were satisfied that Ellsworth devoted sufficient time and effort to the enterprise to conclude that it wasn't some lark. You don't do all that work --- even though he employed 12 full-time employees to do all of the heavy lifting --- as a hobby.

How many years does it take? Your guess is as good as mine. It all depends. It depends on whether you can convince the court of three things:

  • You conducted your activity in a businesslike way
  • You had sufficient expertise in your activity and worked at gaining more expertise
  • You worked at your activity regularly and sufficiently

Thursday, February 19, 2009


It's a crazy world. Tell your granddaughter about sleeping beauty and she asks if sleeping beauty had a trust. "Can she avoid death taxes?" she wants to know. And your grandson, he is no better. When you mention a like-kind exchange he knows you're not talking about some transformation, like Clark Kent into Superman. He wants to see the two properties.

Taxes pervade our lives. Income taxes have been with us since they were initiated to pay for the Civil War. Ever since then, they've been utilized for all kinds of wars and social situations. They aren't going away anytime soon. The basic structure has stayed consistent over time and no matter how often people, including the best of our statesmen, suggest a different tack to take with respect to taxation --- whether it's value-added taxes or some other scheme --- the fundamental foundation remains in place.
All income is taxable from whatever source derived. It is called gross income. The only way you get out of being taxed on income is if there is some legislative grace that has been enacted to do so. And I guess that is gross.

If you are in a trade or business --- or you think you are --- the part of the tax return that should interest you is Schedule C. You ought to become acquainted with it.

Wednesday, February 4, 2009


Businessmen have been known to boast that they don't pay any taxes because they utilize an aggressive taxman that takes advantage of every loophole known to mankind. One joke had an individual saying that he didn't pay taxes anymore, that KPMG did his tax return, and he was getting a $4 billion tax refund. Well, we know what happened with KPMG, don't we?

If you want to utilize the graces granted you under the Internal Revenue Code, it's a good idea to prepare and to become an expert or to consultant someone who is. Too many taxpayers rely on complicated schemes that don't have real substance. They often pay large fees to promoters thinking that they can get tax relief when their own honest effort could have given them the breaks they sought and paid for.

The income tax regulations say in technical, cumbersome, and boring language:

Preparation for the activity [writing] by extensive study of its accepted business, economic, and scientific practices, or consultation with those with those who are expert therein, may indicate that the taxpayer has a profit motive where the taxpayer carries on the activity in accordance with such practices.

So if you want benefits, hit the books and consult the experts. Not only an expert but perhaps a range of experts, covering all of the aspects of your niche. Then implement what the sages say that it takes to succeed in your writing nook. If one of the experts advises you to try something that doesn't work, study some more and consult further and try another sage's idea

You've got to make things happen!