Death & Taxes 4 Writers, Artisans and Freelancers

Searchlight, Nevada

2012-01-20T13:55:00.000-07:00

When unhappy with his press release, Ralph rewroteit and sent changes to Northwest. When dissatisfied with Northwest’s marketing,he wrote demanding that they comply with the terms of their agreement.

By letter dated January 22, 1996, Northwest’saccount executive told Ralph that 6,800 copies of Searchlight, Nevada had been ordered and shipped. It didn’t say whoplaced the orders or where they shipped them, but said that another 2,500 copies had been ordered by thechain Books A Million. Northwest promised royalty statements in about threeweeks.

On his 1996 Form 1040, Ralph reported $2,600 ingross royalties from his writing activity.

In late 1993, after signing with Northwest for Searchlight, Nevada, Ralph began researching Nevada Nights, San Joaquin Dawn. He wanted to document the difficulties that womenface when attempting a break from prostitution. “The story’s never been donebefore to any degree of authenticity,” he said, explaining that he thought itwas commercially viable.

Ralph, however, had learned that rooms at brothelswere equipped with listening devices. Therefore he met prostitutes at otherlocations on “out calls,” paying by credit card. In 1994, during January, February,April, May, June, and July, he spent from one to six days a month in Nevada on “out calls.”He successfully encouraged ten prostitutes to leave their profession. As of histrial, he hadn’t finished NevadaNights, San Joaquin Dawn.

Some time after signing with Northwest on Searchlight, Nevada, Ralph submitted the 450-page Lightning at Dawn. He thought that Northwest only required a jointventure payment for first novels, and so if Northwest agreed to publish Lightning at Dawn, he’d not have to pay anything. He also triedmarketing Boys and Girls Together, but stopped when he was told that there was noneed or market for that type of short stories at the time.

Making the Deal and Working It

2012-01-05T11:28:00.000-07:00

Ralph and Northwest reached an agreement forpublication of Searchlight,Nevada on October 13, 1993. This agreement had Ralph paying Northwest $4,375 topublish ten thousand copies. Northwest’s marketing director wrote Ralphconfirming receipt of Ralph’s money and described it as a “joint-venturepayment.” The company’s operations officer explained via letter that Ralph’spayment represented about a fourth of production and marketing costs for tenthousand copies.

The agreement required Northwest to give a hundred“free” copies to Ralph and two hundred to major bookstores and book reviewers,to sell 2,500 copies through its “test market program,” and to sell theremaining books in the retail marketplace.

Ralph was to get forty percent of the retail amountof each book sold through the test market program and a royalty of fifteenpercent of the retail price of remaining books sold to bookstores andwholesalers.

Northwest was expected to pay royalties January 31^stand July 31^st each year along with interest for late payments. Itwould do a certain amount of sales promotion, advertising, and publicity. Itwas to have exclusive rights to the book.

Northwest representatives told Ralph that his bookwould probably earn him at least $20,000 in royalties.

Northwest published and released the 131-page Searchlight, Nevada in December 1995 with a retail price of $7.95. Thebook went on sale at Barnes & Noble Booksellers in Boynton Beach, Florida, and Falls Church, Virginia,and at Super Crown Books, store #106. People could also acquire it in Bailey’sCrossroads, Virginia,by special order through Borders Books and Music.

Prior to its release, Ralph worked in all stages ofpublication. In 1994, having reviewed its galley proofs, he asked about addingtwo chapters. By letter at the end of February 1995, he suggested cover designsand attached pictures, showing how he thought characters on the cover shouldlook. He promised to provide any additional assistance he could, saying that herealized the cover design equaled the storyline in importance. It didn’t matterif the story was good if readers failed to buy it. Optimistic about the jointventure, he believed they’d have a “hot seller” and sell over 100,000 copies.

Ralph gave Northwest’s public relations departmentmailing lists and telephone numbers of bookstores, newspapers, magazines, andradio and motion picture companies. On his own, he mailed about sixtycomplimentary copies of the book along with individualized letters tobookstores, newspapers, magazines, and hotels. He worked with Northwest’smarketing expert to get it stocked with distributors and to set up booksignings at major bookstores.

The Adventures of Two Men Who . . .

2011-12-16T17:28:00.000-07:00

Ralphresolved to write a story about the adventures of two men who travel across thecountry to patronize Nevadabrothels, where such establishments are—ahem—legal. In early 1993, Ralphdrafted an 18,000-word basic storyline. He submitted his draft along with Lightningat Dawn and Boys and GirlsTogether in June for copyright protection.Ostensibly to make the story realistic and to develop characters with fidelity,Ralph visited numerous legal brothels in Nevadaas a “customer.”

Ican hear cogs in your mind working. If you’re like most, you’re saying, “Nevermind telling me about deducting traveling expenses for going to Vietnam toobtain motorcycle pictures for a picture book.” A more vital question is: couldRalph deduct thosecosts? Well, we’ll see.

Ralph wrote in his journal. Note that, to Ralph’scredit, he kept a non-financial contemporaneous record. He wrote about hispersonal experiences at these—excuse me—whorehouses. He chronicled whichbordellos he visited, the dates and even, sometimes, the hours.

Ralph’s notes described prostitutes he met and theamounts of lucre he paid. For each journal entry, Ralph wrote about thesevisits, about what happens at cathouses (Like people don’t know?). Forinstance, Ralph described selecting his strumpets, the “house rules,”negotiating prices for a gal’s time, their discourse—yes, discourse, not someother course—and the ladies’ clothing. He included personal information on hiscourtesans, including age, physical characteristics, place of residence,religion, ethnicity, education, and names and ages of offspring.

Ralph’s journal indicates that, at some point duringsaid encounters, he told the demimonde he was writing a book about Nevada’s bordellos. Hewanted to use them as characters.

The journal shows that during 1993 Ralph spent aboutthree days a month—except in February, May, and December—meeting prostitutes atbrothels. Using materials so gathered, he produced Searchlight, Nevada.

Anxious to sell his work, Ralphconsulted the 1993 Writer’s Market.There he read about Northwest Publishing, Inc. Northwest’s entry stated that itpublished hardcover, trade paperback, and mass market originals and reprints,between forty and fifty titles a year on seven to eight hundred queries andfive hundred manuscripts a year. Some eighty-five percent of said manuscriptscame from first-time authors and ninety-five percent came from unagentedwriters. Northwest said that it paid a ten to fifteen percent royalty on retailprice, publishing books four months after acceptance of submitted manuscripts.

Some of the Facts

2011-08-02T21:36:00.000-06:00

Ralph, like me, had worked for the Treasury Department, although he didn’t work for the IRS, which is an agency within Treasury. His work as a budget analyst followed his graduation from the University of Maryland with a bachelor’s degree in marketing and advertising, augmented by twenty-four credit hours of English, journalism, and speech.

He retired from Treasury in January 1997 with 35 years of service. Part of his job (one of six critical elements) required him to “write budget justifications, procedures, and other written material by applying professional-level writing ability to create high-quality written work.” (Certainly Ralph wouldn’t have had the subject matter to write much of a thriller, but maybe he had a sense of humor. It was a bureaucracy, after all.)

Just before Ralph retired, his manager rated Ralph’s performance “outstanding” in this “writing” element. “Outstanding” exceeded “excellent” under this system. Go figure.

Anyway, in Ralph’s employment, “excellent” meant writing budget justifications, statistical reports, procedures, guidelines, and other written materials clearly, concisely, and correctly. It included:

• Using excellent grammar and spelling.

• Communicating ideas effectively, especially narratives.

• Presenting ideas clearly so recipients asked few follow-up questions.

• Structuring paragraphs and sentences correctly.

• Working independently in drafting material and seeking guidance only when goals changed.

• Recipients receiving well and acting upon the written budget justifications.

• Doing only one revision per finished product.

Our man Ralph did even better than all of that since he received “outstanding” ratings. It was like getting an “A” plus-plus, I guess.

Ralph’s office staff, mostly accountants, used Ralph to do their writing. He contributed to a comprehensive agency-wide report in which agencies evaluated internal control and accounting systems. He edited the in-house newsletter of Treasury. So Ralph brought writing skill and experience to the table.

In 1992, about two years before he was eligible to retire, Ralph started writing outside his Treasury job. Fearful of retirement, he told the IRS and the court that he had hoped to make writing a second career. His first book-length manuscript of fiction was Lightning at Dawn. Later that year he wrote a collection of short stories called Boys and Girls Together. Before marketing these manuscripts for publication, he had an idea for another book.

Now what I’m about to tell you may seem incongruent for a bureaucrat like Ralph who worked for Treasury with a bunch of accountants writing staid budget proposals. He was at least fifty-five years old, maybe older.

Don’t be too surprised.

Tune in next time for a shock.

Venting Frustration by Turning the Tables

2011-07-14T16:12:00.001-06:00

You know, there’s a plethora of wisecracks about tax auditors. For instance, one says that the Postal Service just recalled its newest stamps because they picture famous IRS agents on them. People couldn't figure out on which side to spit. Another witticism asks, “What do you call twenty-five IRS agents buried up to their chins in cement?”

“Inadequate cement.”

Venting frustration through humor makes sense. An additional way to vent is to turn the tables on a tax auditor with solid documentation of your hard work and preparation, enabling you to claim a few of the tax perks for self-employed persons. Of course, the ruling administration always claims that the IRS is simply liberating people—primarily, the working middle and lower classes—from fiscal burden.

A tax case involving a writing activity played out in Tax Court in Arlington, Virginia, the case of Ralph Louis Vitale, Jr.1 Let’s look at it relative to preparation and expertise. I don’t know if Mr. Vitale goes by Ralph or Louis or some other appellation among friends and acquaintances, but I’d like to call him Ralph. It seems such an improbable name for what his writing focused on after retirement. To me his last name, Vitale—reminding me of “vital” or “vitality”—seems more apropos. Anyway, the guy had verve, although some might say he was just libidinous. You be the judge.

Let me give you the facts in the next posting.

1 Ralph Louis Vitale, Jr. v. Commissioner, TC Memo. 1999-131 affirmed by unpublished opinion of the Fourth Circuit at 217 F.3d 843.

What to Do? What to Do?

2011-07-02T12:09:00.000-06:00

It is no small thing to draft a book, and there is little doubt Sarah worked at her writing activity. What should Sarah have done differently? Here are some suggestions.

· From 1976 to 1980, even while working for Yale as a research associate and computer programmer, if she intended to write for profit in the future, she should have:

o Begun writing

o Taken pertinent classes

o Formulated a business plan

o Joined and participated in a writer’s league

o Attended writer’s conferences

o Joined a critiquing group

o Started submitting pieces to contests and publishers

· When she learned of the publisher of travel guides who needed information for a revision to an African travel guide and contacted the firm and received information regarding submissions, she should have incorporated such into her plan and followed up or explained why she hadn’t.

· While in Africa and Israel and employed by Weizmann, Sarah should have tracked her writing efforts, logging typewriter use, research time and efforts, and any other efforts she expended to write her draft based upon her adventures there. Did she work eight hours a day for her employer and write for one hour a day? She should have kept financial and non-financial records of writing activities. Also, she should have modeled an exemplar, someone who had already sold well and made lots of money in her genre— Bill Bryson, who wrote A Walk in the Woods and, much later, In a Sunburned Country comes to mind. At the same time she should have retained her originality and voice and planned how her work could compete or fill a new niche. (It’s hard to convince the IRS or the Tax Court that you moved somewhere to gather writing materials to write a particular piece of fiction while you’re making substantial wages from your employer. That’s especially true if the wages you make are substantial compared to the revenue or potential revenue of writing.)

· Sarah should have gotten her work published. At the very least, she should have shown she consumed herself trying and that she had an alternative business plan to market it. It wouldn’t hurt, for example, to show that she could at worst self-publish and peddle her work. Potentially, then she could eventually generate revenues like forerunner Bill Bryson. (Of course, her writing skill would have to rival or exceed his—perhaps this would be another goal for her business plan.)

Silly Sarah

2010-09-17T11:23:00.000-06:00

Consider Sarah Lesher, who had had a couple of appalling encounters with the IRS, partly because she didn’t adequately prepare.

From 1976 to 1980, Sarah worked for Yale as a research associate and computer programmer. When she learned of a publisher of travel guides in need of information for a revised edition of an African travel guide, she contacted the publisher and received information regarding the submission of articles.

Sarah traveled to Africa in October 1980 and then to Israel in January 1981. While in Israel, apparently to gather information for writing, the Weizmann Institute employed her as a computer programmer. During 1981 she bought a typewriter and wrote at least one draft of a fictional work based on her adventures while in Africa and Israel. She didn’t keep any type of business accounting records of her writing activities. Nope, Sarah thought she could get by without debits or credits or other financial or non-financial records.

My friend Doug, longing to deduct the costs of going to Vietnam to get photographs of unique motorcycle use to create a picture book, might want to pay attention to this case as an example of what not to do.

In September 1981, Sarah left Israel for Europe and then returned to the United States at the end of November. During 1981 she incurred a total of $9,847.13 in expenses connected with her travels. She deducted this amount on Schedule C of her 1981 Federal income tax return.

Again in 1982, Sarah traveled to Africa, possibly for writing materials, and there resumed working as a computer programmer. In April 1983, she returned to the United States where she continued her education and again worked as a computer programmer.

Sarah lacked experience writing any type of literary work prior to her trip. Further, she didn’t publish or sell anything she wrote with respect to her travels before her Tax Court trial. By then she still hadn’t engaged a literary agent to help her to publish. (It doesn’t appear that the Tax Court knows how difficult it is to get a literary agent.)

Silly Sarah didn’t ever show the court that she had traveled to Africa, Israel, and Europe to write, or that she had remained in Israel in 1981 to author works that could make money. The court said that Sarah used her fiction manuscript as a pretext to claim her travel as a tax deduction. Essentially, the court said that Sarah’s fiction was a fiction.

While Sarah introduced several hundred exhibits, including a copy of a draft of her novel—it makes one wonder how that impacted her copyright—correspondence and information concerning the accomplishments of her ancestors, friends, and acquaintances, her personal life, her activities for many years before and after the years in issue, and even the backgrounds of various authors, the court still said that Sarah used her draft novel as window-dressing to support claims for travel expense deductions.

“Preparation precedes power.” Remember that axiom. Prepare to be a better artisan and to address every IRS concern by studying your expression activity’s accepted business, economic, and scientific practices, or by consulting its experts.

Preparation and expertise.

2010-08-31T16:28:00.000-06:00

An old story has a businessman boasting to his competitor, “Tax day is coming next week. Yep, good old April 15th—that particular day used to scare the pants off me. But you know what? I don't pay the tax man anymore. KPMG did my return this year. I'm getting a refund of $4 billion.”

Preparation and expertise. Let’s get a little more know-how under our belts, and not the type that the businessman boasts about in the gag. Too many taxpayers rely on complicated schemes without real substance and pay large fees to promoters to get tax relief when their own honest effort could give them the breaks they seek. Relevant income tax regulations say in their technical, cumbersome, and boring way that:

Preparation for the activity [in our case, an expression activity,] by extensive study of its accepted business, economic, and scientific practices, or consultation 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.

In other words, hit the books and ask the experts. Study a range of experts, covering all aspects of your niche in expression. Implement what the sages say it takes to succeed in your expressive nook. If an expert advised you to try something and it didn’t work, do more study and consulting and try another sage’s idea or one of your own. Make things happen.

To Facilitate a Means

2010-08-23T22:37:00.000-06:00

Some years ago Bill Maher fantasized a tax return of repute, saying George W. Bush's tax returns were a bit different. He claimed the President wrote off the Christian Right as dependents, declared the 2000 election as a gift, and tried to claim the mileage he got from 9/11. Bill, of course, was joking around, fabricating. Don’t make your return that reports your expression activity a truth stranger than fiction, worthy of ridicule by taxing authorities. The Tax Court said:

The purpose of maintaining books and records is more than to memorialize for tax purposes the existence of the subject transactions; it is to facilitate a means of periodically determining profitability and analyzing expenses such that proper cost-saving measures might be implemented in a timely and efficient manner.

Don’t muck things up

2010-08-22T21:22:00.000-06:00

John R. McCarthy —I’ll call him Johnny—retired from Rocketdyne, Inc. He’d worked as a scientist and engineer for 35 years writing technical and scientific proposals. Thereafter, he still worked, but was self-employed, utilizing his prior experience.

On various Schedules C, Johnny listed his “principal business or profession” as writing, investing, job shopping, art, engineering, science, consulting, teaching, photography, and research. (A bit unfocused, eh?) Johnny stuck some royalties, interest income, and lecture fees characterized as business income on the Schedule C pertaining to writing. Despite asserting that he used those resources to pay for writing expenses, such income didn’t derive from any writing he had done. Johnny should have reported these royalties and fees as “other income” and the interest income on the interest-income line on his tax return.

The court said that Johnny’s expenses which truly related to writing couldn’t offset such income which didn’t come from writing. Everything Johnny did made it look like he was confused and undecided. To use a cliché, Johnny was a jack of all trades and a master of none. The expenses he listed on various Schedules C related to his writing activity all right. Writing was the only activity he really engaged in with regularity. Concluding that he should have reported everything on a single Schedule C pertaining only to writing, I’ll bet you’re not surprised to hear that the court concluded that he lacked a profit motive. He hadn’t generated any writing revenue. While aspects of his activity were managed in a businesslike manner, Johnny couldn’t explain how he expected to recoup his substantial losses. A sound, focused business plan and accurate and complete financial and non-financial records could have helped—both in making his business profitable and in convincing the IRS he had a “profit motive.”

Don’t muck things up. Forget trying to disguise income from other sources as income for expression activities. That’d be crazy. Keep records—business and non-business—that present operations clearly, completely, and succinctly. Remember the bard’s advice: brevity is the soul of wit. Mind your debits and credits if you use them. If not, don’t scrimp on accuracy, meticulousness, and using the data germane to and used in conjunction with a vibrant, viable and compelling business plan. Make it crystal clear that you have a plan to succeed as a writer—that your goals show that you plan to be as successful as J. K. Rowling or Dave Barry. If you’re convincing enough, you’ll never have to worry about convincing the IRS that you’ll recoup your losses.

Non-financial records should include databases of contacts, customers, and consultants, along with their pertinent information. If you’re a writer, you should keep track of the hours of your writing, researching, and editing. You should have a database to show details about your submissions, including the title of the work, where you submitted it, the date, follow-ups, responses, sales, etc.
One further thing: keep your expression activity records separate from personal records and other business records. Have separate expression activity credit cards, debit cards, checking and savings accounts, and accounts at your favorite vendors. If you have more than a single proprietorship, don’t ever intermingle them. Doing so may subject you to ridicule.

Integrate Financial and Non-financial Records into Your Dynamic Business Plan

2010-08-18T15:53:00.000-06:00

Sloppy books and jumbled records can point to a hobby. In one case the Tax Court said, “The record . . . is vague and confusing. There is no clear picture of the exact nature of [the taxpayer]'s recording activities. Nor is there a clear picture of how and when, if ever, these activities are going to result in a profit.” The court goes on to say:

…the record was incomplete, without evidence of an organized, businesslike attempt by [the taxpayer] to engage in an activity for profit. [He] did not introduce evidence of long-range planning or of organized recordkeeping. Nor did he introduce evidence to prove that he had regular customers and receipts— normal attributes of a profit-making enterprise.

Moreover, in many instances the evidence which appears in the record tends to indicate that [the taxpayer]'s activities were motivated by pleasure rather than by a desire to make a profit. At no time through the end of the taxable year in question did [taxpayer] hold himself out to the general public as being engaged in business. Indeed, [the taxpayer] did not even carry on his recording activities during the year in question.

So be certain that your records—financial and non-financial—present a clear picture and the exact nature of your expression activity. Integrate financial and non-financial records into your dynamic business plan.

Debits, Credits, and Other Nincompoopery

2010-08-09T16:24:00.000-06:00

A late-night talk-show host some years ago now quipped about an our-of control accounting firm debacle, “If your accountant is Arthur Andersen . . . today is the last day you could have your tax documents shredded by April 15th.”

Let’s face it; the accounting profession has committed sufficient buffoonery ove the years to rival the stench of Yellowstone’s sulfur pots. That’s not to say that accounting is suspect. Yet accountants can be. Watch out for such fatheads.

Many admit that accounting is a yawner, that accountants are . . . well, lackluster. Make no mistake though, for your expression activity to be a trade or business you need to pay attention to its basic accounting. That doesn’t necessarily mean that you have to know debits and credits or hire a high-falutin’ CPA. If you choose a CPA or other tax professional, make certain it’s someone you can trust. A double-entry system of accounting isn’t necessary, although it certainly won’t hurt if it’s done correctly. The key is accuracy, meticulousness, and using the data in conjunction with a vibrant, viable business plan. Regulations and court cases point out that those who maintain good books and records for their activities are more likely to have “intent to profit” and thereby escape the “hobby” label even when they have successive losses.

Plan, Pursue the Plan, Adapt

2010-08-06T09:37:00.000-06:00

The Court in Stasewich's new case (Richard A. Stasewich v. Commissioner, T.C. Memo.2001-30. The earlier case was Stasewich v. Commissioner, T.C. Memo.1996-302.) said:

"[Richie] has not made any significant changes in the operation of his artist activity, during the years in issue here, that would create a market or allow him to benefit from a market for his artwork or allow him to make up for his substantial losses. In [his earlier case before this court], we explained [that] ‘The large unabated expenditures, the absence even at this late date of any concrete business plans to reverse the losses, and the manner in which [Richie] conducted his artist activity lead to the conclusion that this was not an activity engaged in for profit."

Make a business plan and make it live. Your new business should change and develop just as a new baby grows and matures.

2010-08-03T14:25:00.000-06:00

Richard Stasewich (I’ll call him Richie) of Chicago attended Northern Illinois University between 1971 and 1977, majoring in art and minoring in accounting. Richie didn’t graduate. By 1978 he was registered as a CPA and by 1983 Illinois had licensed him as a public accountant. Between 1978 and 1984 Richie worked in various positions utilizing his accounting background.

From 1992 to 1995 Richie operated both his accounting and artistic activities out of the building where he worked and lived. Beginning in 1984, he treated his artist and accounting activities as sole proprietorships for Federal income tax purposes. He reported net profits and losses for his two separate Schedule C activities as follows:

Richie’s income from artist activities without expenses for 1992 to 1995 was only $770, $320, $266, and $357, respectively. Needless to say, he didn’t support himself from this expression activity, and his accounting-activity income came in handy for his sustenance. Not only did he support himself with such work, but he kept good financial records and was able to show the IRS substantiation for all of the expenses he claimed on his returns.

Richie had a Certificate of Registration from Illinois that permitted him to engage in business, selling tangible personal property at retail. He filed state sales and use tax returns and completed Forms W-2 for the art students he employed.

What Richie didn’t keep were records of a budget or financial projections for his artist activity, or records of costs he might incur in attempting to develop his artist activity. That is, he didn’t plan well.

At trial Richie explained that before 1992 he had decided to create a commercially viable product from nude drawings. He tried fashion illustrations and spent a lot of money on materials and props, but never secured a large client and never earned anything from it. Around 1992, his artist activities changed from nude drawings and fashion illustrations to portraitures and installation art displays. For $1,200, he placed two advertisements in his local newspaper to solicit work as a commissioned artist of portraits. He painted two portraitures between 1992 and 1995 that generated about $850 in revenue. From 1992 to 1995 he created four displays of installation art consisting of peppers, dolls, pumpkins, and cucumbers. These he displayed in front of his residence. The exhibition of dolls received media attention, was the subject of two newspaper articles in 1994, and was mentioned in another newspaper article in 1995. (I guess journalists passed on reporting about the exhibitions of peppers, pumpkins, and cucumbers.)

Richie's income from the installation displays totaled a measly $88.04 . . . of donations.

The IRS audited Richie first for 1988-1991. The dispute ended up in the Tax Court, where he lost. This didn’t deter Richie from claiming his expression activity losses from 1992-1995 and again taking the matter to court. We'll talk more about this in the next posting, too.

. . . plan well and follow your plan . . .

2010-07-31T15:59:00.001-06:00

To start a business, you need a business plan. A resource for the essential elements of a business plan can be found online at the United States Small Business Administration. Also, you might want to check for business planning ideas from writers' sites online .

A great business plan and the IRC (Internal Revenue Code) have something in common. Like a great classic, every time you reread it you find something new. This is not because, like a great classic, your business plan is timeless, but because it’s dynamic. It’s a work in process, a series of actions, changes, or functions bringing about a result. Plan on it.

Just remember, Congress plans. It plans on some people and businesses paying taxes—but not everybody. It takes intricate legislative planning to allow certain contributing constituents of political parties to avoid taxation, but not others. Often when the public discovers hidden taxes, Congress’s solution is not necessarily to do away with the concealed taxes, but to hide them better. In similar fashion, you have to plan well and follow your plan to show that you are in business to make money, whether or not you have made money yet or not.

Formulate a Plan

2010-07-28T17:10:00.000-06:00

After I retired from a long, long career with the IRS. I wanted a change of pace. I still wanted to utilize skills and experience garnered over the thirty-four years I worked for the IRS as an Appeals Officer. Yet I wanted to go in a new direction, and make money doing it!

Like you, I’d dreamed of making my expression activities profitable. I had a long almost-written novel under my belt that my critiquing group seemed to like..My short stories had won a writing competition or two. I’d had some things published in the newspaper. Up until then, though, I'd been dabbling, puttering around, dreaming big—like most of you. Writing had been my hobby. Okay, how did I transform it into a business?

I can imagine you shouting at me: “Walt, after working that long for the federal government, especially for the IRS, your judgment and work ethic must be shot. Surely you can’t be serious about making money by writing. I advise you to buy a lottery ticket, sit back and relax with a cold drink, and forget writing to make a profit. It’s a pipe dream.”

Perhaps you’re right . . . about the lottery ticket. By now you should know I believe in true grit. So let’s move on.

First, I made my plan. Mine started as follows:

Summary

“Make expression less taxing” was my mission statement . . . at first. It changed as my business progressed. At the time it gave clarity to my plan while leaving room for imagination. Eventually I planned it would become “Make expression very profitable.”

This was a start-up. I’d begin when I retired from the IRS. I’d write books and articles to self-publish and them market myself, or sell them through conventional methods—utilizing agents, editors, publishers, etc. I’d participate in local writing societies and critiquing groups, hoping to gain feedback from those who read and write in order to hone my craft.

I’d write from home or wherever I happen to be in the course of my expression activity or my personal life. My business would entail travel and entertainment.

My primary marketing tool to begin with was to be a self-help book about making expression activities less taxing, thus paying less to the IRS and related state and local income tax authorities. I’d speak publicly. The value of my presentation would command the cost of travel and a speaker’s fee. I’d utilize speaking engagements and the sponsoring platforms to market my books.

I'd also do professional representations of taxpayers engaged in expression activities who have problems with the IRS.

Since my retirement pension would be less than my salary was when employed, my goal would be to profit from this new business sufficiently to make up the difference. After that I’d aim to net an amount equal to my pre-retirement wages. Subsequently, I’d steadily increase revenues, hoping eventually to make a generous income and gain a solid reputation that could command respect and attention in the publishing world.

Initial sources of revenue would be the sale of my book, Making Expression Less Taxing, and fees for speaking on the relationship of expression activities and taxation. I’d augment this revenue by representing clients with federal tax problems relevant to expression activities with the IRS.

I suggest you start formulating your own business plan like I did.

Planning to Exploit the Graces

2010-07-27T15:31:00.000-06:00

John (see Ellsworth v. Commissioner, 21 T.C.M. 145, 150-51 (1962)) was 65 years old and had a plan. The attendant facts showed it’d take him 15 years to generate a profit. Yet the Tax Court said that a trade or business existed in his case because his purpose in “carrying on the activity” was to profit.

America was founded to avoid high taxation, right? Today avoiding high income taxes takes planning to exploit all of the graces. So it should be no surprise that you need to plan relative to your own expression activity. Remember, experience isn’t necessarily a requirement for having a trade or business. But a good plan is. So to answer further the question, “Is my expression activity a trade or business?” let’s look at the process of planning next.

Is My Expression Activity a Trade or Business?

2010-07-21T13:41:00.000-06:00

Guess what? Federal income tax law and related regulations don’t define what “trade or business” means. Surprised? You shouldn’t be. I told you there was plenty of mystery in taxation. Ambiguity, it seems, is intentional. Some wit compared an income tax return to a girdle. You put the wrong figure in it and you can get pinched.

Tests to check if a trade or business exists stem mostly from court opinions (primarily from the United States Tax Court or from appeals made from those decisions ). Courts have developed two key definitional elements, one for “profit motive” and the other relating to the “scope” of the activities.

Finding out the motive is a key element in figuring out a mystery, right? A trade or business doesn’t exist unless a taxpayer “enters into and carries on” an activity with a good faith intention to make a profit or in the belief that a profit can be made from the activity. Money is the motive—bottom-line profit. That means you have cash left after all expenses are paid. Faith that an activity will generate a profit doesn’t need to be reasonable. However, simply hoping and wishing it will be profitable absent specific plans suggests that you lack good faith.

Remember the cold-fusion fiasco? The notion that oodles of cheap atomic energy could be produced cheaply and “coldly”? Too good to be true, right? Well, one Burnet Outten, Jr.—I’ll call him Bernie—representing himself without an attorney, took his tax controversy concerning cold fusion and graces relative to it to the U.S. Tax Court in 1984.

Bernie seemed a bit “unusual.”

He didn’t file federal tax returns from 1972 to 1979, for one thing. He had an interest in Western Metal Products Company (Western), a manufacturing concern. Besides manufacturing, according to Bernie, Western conducted atomic energy research. Yet Bernie was the only company participant in such research. Ostensibly, an experiment in 1951 resulted in nuclear fusion. Bernie, however, didn’t “realize” that nuclear fusion had occurred in 1951 until 1961, while doing further research. Bernie purported that Western repeated the 1951 experiment in 1971. Neither Bernie nor Western ever patented any such process.

Bernie believed that the world was created by cold fusion. He seized upon the alleged religious significance of the creation of the world by such process. His legal briefs contained extensive arguments about scientific experimentation and religious freedom. They explored history from Thomas Jefferson to Ronald Reagan and from the Bible to reports of the Atomic Energy Commission.

Over the years Bernie often attempted to inform scientists and government officials of his miraculous “discovery,” asserting that it was never duplicated. Some commentators expressed polite interest; others found it . . . well, a joke.

Neither Bernie nor Western received any filthy lucre, let alone profit, from said nuclear fusion “process.” No income relative to it was reported. Western’s income, if any, came only from manufacturing. Nonetheless, by 1978 Western established a $50,000,000 book value for this fusion “process.” On 1977 through 1979 tax returns, Western listed net operating losses of $100,000, $10,000,000, and $5,000,000, respectively. The preparer of the return described these losses as a “write-off of capitalized research work.” Bernie concluded that a grace was justified because government officials ignored him and his “discovery.” It was strange. Sort of like the President of the United States releasing his tax returns which listed the economy as a liability and write-off.

During the audit Bernie listed various actual expenditures—small amounts—that he made during the years involved. He gave the list to IRS. These included mostly expenses for his home office and for his move. IRS attorneys acknowledged that the expenditures were made by Bernie, but scoffed at them falling within any acceptable grace. The Tax Court concurred, saying that Western faced “a multitude of obstacles.” The court focused on just one: profit motive. It said that no income was generated nor was any likely to ever be generated from the fusion activity.

Well, let’s face it. Bernie’s circumstances were “singular.” His mistakes cost him more taxes. He was like a conservative president deducting right-to-lifers as dependency exemptions, accepting his election as a gift, and trying to write off the losses in Iraq. Nonetheless, something can be learned from Bernie’s case. As a man of religion once said, “If you make a mistake, all is not lost. You can always be used as a bad example.” So let’s use Bernie’s case as a bad example. It can teach us what not to do. I’ll summarize some points below and expand upon them in chapters to follow.

First and foremost, figure out how to make money from your expression activity. Have a profit. Bernie didn’t make any money from cold fusion. Make a written plan setting forth how you plan to make a profit from your expression activity. Follow it. If it doesn’t make money, change your plan so you think it will after the change. Keep following the plan and revamping until you make money or decide you can’t make money. If it comes to that, your expression activity becomes increasingly difficult to sell as a trade or business. Eventually, it becomes almost impossible to convince the cynics at IRS.

Second, keep complete and accurate records, both of a financial nature (you know, dollars and cents, checkbooks, receipts, debits and credits, etc.) and non-financial records (like submission databases, contracts, business plans, correspondence with agents, diaries or journals, etc.). From the opinion of the Tax Court in Outten v. Commissioner, it doesn’t appear that Bernie kept very good records of his activities, does it?

Make certain that your expression activity has substance. Don’t be naïve like Bernie was by boasting it hadn’t been duplicated when duplication was the very thing that may have given it some scientific credence. Know the ins and outs of your activity and know how to communicate them.

Another thing; don’t try to hide your expression activity results for tax purposes within some other, perhaps more viable enterprise on your tax return. For instance, it looks as if Bernie tried to make his cold fusion activity transparent by burying it in the Western partnership operations. If you write fiction part time and work as a lawyer most of the time, don’t bury the profit-and-loss statement of your fiction-writing activity within the profit-and-loss of your law practice. Doing so makes you look like a cheat and a ditz. Don’t do it. It’s not savvy. They are separate activities, for pity’s sake.

To be or not to be; that’s the question. To be a trade or business there has to be enough business activity and profit objective. Get them and you’re home free. Such are measured objectively . . . well, that’s what the laws and courts say, anyway. Tax shelters, for example, often have neither sufficient business activity nor profit objective. Many therefore receive no graces. To be certain, a trade or business can exist with no profits in the early years (and sometimes none are earned for many years and yet a court approves), provided there’s a prospective profit sufficient to cover the losses. You don’t have to expect that profits from your expression activity will come immediately or within a short time, but your aim to profit must be genuine. If challenged, you have to be able to persuade the IRS or a court. If you’ve stacked up $100,000 or more of losses over multiple years, you have to be able to convince the IRS (and if not the IRS, then a judge) that your expression activity will earn enough not only to make an annual profit but to recoup your prior losses.

Good News

2010-07-14T17:45:00.000-06:00

Generally, individuals can deduct outlays made seeking income, whether in carrying on a trade or business or only conducting an activity for profit. The major “grace” connected with Doug’s writing activity—or for that matter with your expression activity—stems from IRC §162. Ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business are allowed as deductions or graces.

The meanings of “trade or business,” “ordinary and necessary,” and “carrying on” are all important. In a hierarchy of importance of these aspects for the freelancer of expression, the meanings of “carrying on” and “trade or business” exceed the importance of the meanings of “ordinary and necessary” because their scope is broader.

If expenditures aren’t made “carrying on” a “trade or business” the question of whether or not they are “ordinary and necessary” becomes moot. They can’t be deducted to create a loss that can be used to offset other income—related or unrelated to the freelancing income, or carried to other tax years to recoup or save taxes. On the other hand, if expenditures are made while carrying on a trade or business, they still must be ordinary and necessary. But that’s an expenditure by expenditure evaluation, almost always a barrier that is much narrower.

An anecdote tells of a taxpayer asking a revenue agent to cite the law requiring him to pay additional income taxes. Supposedly the taxpayer jests that the revenue agent will die of eye fatigue and confusion trying to find it in the code.

Well, I have news, bad and good. The bad news is that the taxpayer got it wrong. Almost invariably it works the other way around. The revenue agent generally worries only about the all-inclusive income provision (IRC §61). All income is taxable unless saved by some legislative grace. Taxpayers bear the burden of coming within the terms of some grace or other.

The good news? You don’t have to worry about arrows pointing every which way and not knowing how to find the way to go. I’ll show and tell you ways to bear that burden in the following postings. So don’t pout and say “It’s too much, I surrender.” Stick with me here and see if what I say won’t work for you.

Blood From A Turnip

2010-07-13T22:57:00.000-06:00

Our prospective Vietnam traveler, Doug, who was mentioned in prior postings, works as an administrator for wages (“W-2” income ). His employer pays him what’s left over after withholding federal employment and withholding taxes, among other amounts. Law requires his employer to withhold and pay over taxes on behalf of Doug. Almost everyone is acquainted with working for wages and has complained about withholdings. It’s not that the government doesn’t trust us, but it’s a pay-as-you-go system. And of course, they don’t trust you.

So Doug has income. The critical question now, though, is whether Doug’s prospective costs in traveling to Vietnam to get pictures to use in a potential picture book relate to activities that generate his wages. The answer is no, the two activities don’t relate. At most his wage income facilitates Doug’s going, but that’s all. There’s no link between his administrative job and his potential trip to gather photographs. Any income related to a picture book is only speculative.

On the other hand, suppose Doug has previously written other things and sold them or won prize money for his writing. Maybe he uses those revenues to fund his trip. Now we begin to see a closer connection. Maybe Doug pitches his picture book idea to an agent or editor and he gets positive feedback, and he has a contract, implied or otherwise. His writing is an activity, separate and apart from administrating for an employer, and has a closer connection to his prospective picture book-making activity. So now, assuming Doug finances his trip to Vietnam from revenues from his writing activities, is he home free in deducting those expenses?

One of the IRS auditors who sent many taxpayers my way to appeal his extreme exactions (and extractions) of more tax had a morbid sense of humor. He’d say, “Invariably my taxpayer will pick the thing up and turn it over. You know, trying to figure it out. It looks sort of like a misshapen hourglass, don’t you think? And instead of sand it has that dark-red, almost purple, viscous fluid in it. The thing just sits there on my desk, across from me and close to them, while I go through their bank statements, receipts, and canceled checks. Taxpayers become bored. ‘What’s this?’ they eventually say, picking it up.”

“And what do you tell them?”

“Blood from a turnip.”

As you can imagine, timid taxpayers don’t laugh at such morbidity. Nevertheless, those engaged in expressive activities like you need to know that hidden traps can humor sinister auditors when all you want to do is to deduct the costs of creating a book design or a picture book trip.

Grace? No, not that girl!

2010-07-08T16:15:00.001-06:00

Faced with the immensity of the IRC --- the Internal Revenue Code---, it’s no wonder that tax consulting and preparation businesses thrive. Most productive people, especially those in business for themselves, rely on CPAs, enrolled agents, public accountants, attorneys, and other professional tax preparation businesses and firms (and some not-so-professional). Everybody knows what H&R Block and J.K. Harris firms do. Many have relied on firms like KPMG, perhaps to their everlasting chagrin.

The U.S. Legislature and the Administration, no matter what party runs the government, promise tax simplification. Without equivocating, they have “simplified” income taxes and related forms beyond understanding . . . especially for those unwilling or unable to spend time and attention—significant time and considerable attention. Where do you fit in relative to this scheme? Let me give some scope to Doug’s quandary—or yours. Our tax system is premised upon a simple notion: income. All income, from whatever source derived, is taxable (IRC §61 ). If you find money hidden in the workings of the old piano you plunked on as a girl when you visited Aunt Betty and that she bequeathed to you, such money is income to you. Not only is the money in the piano income, but so is the value of the piano. And if you trade your knowledge of graphic design to a friend, promising to help with a brochure in exchange for him moving your inherited piano, guess what? You’ve got it. The value of the exchange is income . . . to you and him. It’s the old cliché; they’ve got you coming and going.

“Whoa,” I hear you saying, “that doesn’t sound right. I don’t think my folks paid any tax when they inherited that money from Gramps.”

Well, that’s where “grace” comes into it—not your old girlfriend, Grace, but grace, the disposition to be generous or helpful; goodwill. No matter who’s running the government, they want to be seen as generous and helpful. To be seen that way, but not necessarily to be so, that is. So when there’s a hurricane and consequent flooding, elected officials wander out hoping to be seen as bighearted and taking control. (The judiciary is a little different; they want to be perceived as erudite, fair and just.) In any event, the legislature grants some generosities to be helpful with the tax system and the administration also puts its stamp on them, grudgingly or not. It’s often nothing more than a sophisticated exercise in social engineering. Grace is often granted to the rich and powerful, a special interest group, or to some “special” situation. It all must have some semblance of equity and fairness.

All income is taxable, but by grace allowances are made. One grace eliminates the value of that inherited piano from taxation. Freelancers like Doug or you or me have lots to consider. First, do we have any income? If not, it’s moot; it is, after all, an income tax. We don’t need graces with no income. But if we have income, it’s important to consider its source. Why? Well, the graces generally relate back to the source of the income. That piano’s value is not taxable because lawmakers decided inheritances wouldn’t be taxed.

How about the money hidden in that piano? What does its taxation depend upon? I hope you’re saying, “Whether or not the legislature granted a grace.” Well, in this case there is no grace. The windfall is taxable.

Dizziness, Nausea, Regurgitation, and Loss of Consciousness

2010-07-07T11:00:00.000-06:00

The novice, new to a sustained expression activity, is reminiscent of the neophyte writer who enters an IRS taxpayer service site to get help with a federal tax question. In the foyer she sees a small sign: “Tax Help.” Above it is a much larger poster with myriads of arrows pointing in every conceivable direction. However, there’s no clue where any of the arrows go. Two other separate arrows on separate signs are clearly marked: “Audits” and “Collections.” Clearly they don’t involve “Tax Help” and also don’t point where anyone wants to go.

In this blog, I’ll make it clear where the crucial arrows go and how best to avoid or prepare for ones clearly labeled pointing toward audits and collections.

Now, a crucial question for you: do you have a business plan for your expression activity? If you want results, you must plan. A plan allows you to look ahead, allocate your wherewithal, concentrate on key points, and prepare for problems and opportunities. Planning is vital for operating a business, whether you’re just starting up, getting a new loan, or making or soliciting a new investment. Plans facilitate optimal growth and development.

If, at this stage, you’re still trying to figure out if you’re a writer, if you’re still just focused on that first novella, a third sculpture, or perhaps only your second book design, then by all means now is possibly not the time to read this book. On the other hand, if you begin to see the glimmer of possibilities of succeeding as an artisan of expression and getting significant tax benefits as you start up, then stay tuned.

Some wit coined a term, intaxication, used to describe the stupefaction caused by the Internal Revenue Code (or IRC, as it’s known in the profession—otherwise referred to by some snooty attorneys who look down on it as Title 26 of the United States Code ).

In the Fall of 2005, I worked every day with the IRC at my side—my version published in 2004 contained 9,390 pages—and five volumes of similarly sized Treasury Regulations, necessary to explain the IRC. That’s over 54,000 pages alone, none of it what could be described with a straight face as a “good read.” Not only that, but the text in the IRC volume was fifty-fifty size-eight and size-six fonts.

Immediately across the hall from my office resided a vast library of books containing further explications, opinions, and tangential laws related to the IRC, bless its little (and I mean tiny) heart.

A friend told me when she was small and her mom took her to the town library, she dreamed of reading every single book in it. Only the most sick-of-soul person dreams of reading all the volumes in that tax library situated across from my former office. Such would result in inebriant effects: dizziness, nausea, regurgitation, and loss of consciousness. I confess I’ve suffered the effects myself.

Sticking With It

2010-06-27T22:38:00.000-06:00

Most people read a mystery for the intrigue, to find out who did it and to figure things out as they go. It certainly doesn’t hurt if the mystery is masterfully written, with an elegance of expression, and is entertaining. In any case, readers don’t want the answers to a mystery all up front or there’s little reason to keep reading.

People enjoy art for similar reasons. The art they afford for themselves is acquired to enjoy its subtleties over the long haul. If finding out whether your expression activity can be less taxing isn’t mystery enough for you, doesn’t have adequate subtlety, and the knack of the telling isn’t captivating enough for you, please don’t stick with me. You’ll possibly be disappointed if you read on under those circumstances. Also, if you’re experienced in the business of expression, already making scads of money and are well established and skilled, maybe this advice isn’t for you either. (However, maybe you’ll enjoy comparing what you’ve done with what I suggest and pick up some pointers, too.) In any event, if you decide not to read it, maybe you know somebody on the cusp of great things that could benefit from it. Please pass it along.

On the other hand, after you’ve read all the postings, considered all the facts and circumstances and the applicable law in your situation, you’ll be able to figure things out. You’ll know that a lot of hard work is involved in any business of expression and it’ll make you a better manager and, perhaps, a better artisan. I’m telling you honestly, it’ll require patience and work, maybe both in the extreme. And if you don’t have the patience for it and aren’t committed to it, you possibly don’t have what it takes to succeed as a craftsman of expression anyway. Maybe this would be a waste of your time.

Suck It Up

2010-06-26T10:31:00.001-06:00

Perhaps you’re already saying about my last posting, “Walt, you’re rambling; it’s a simple question. Just give it to me straight, it can’t be that hard—can Doug go to Vietnam and deduct it? If you can’t answer that simple question right now, why should I even listen to you?”

Okay, that’s fair; I’ll give you an answer. Yes, he can. How’s that? Is that what you wanted to hear?

But the answer could also be “no” or “maybe.” You see, it depends. It’s as simple as that, and as difficult. Federal income taxes are complicated. If you think otherwise, you are naïve. Don’t be.

The answers that I intend to address here involving federal taxation focus on “expression activities,” whether your expression is made as a journalist, a painter, a book designer, woodworker, fiction writer, poet, or any other way you may express or intend to express yourself. They are based upon the premise that all of the facts and circumstances and applicable law have to be considered. I hear you groan. Suck it up.

This won't be some watered-down exposition intended to skim the surface, leaving you in the lurch if your tax benefits are challenged by the IRS. It won’t leave you scratching your head wondering what to do if a revenue agent or auditor alleges that you owe thousands of dollars more in taxes, interest, and perhaps even penalties. And it isn’t for anyone dabbling in an expression activity, sticking a toe in to see if the water is frigid or not. It’s for those who take the plunge. So be prepared.

2010-06-18T19:19:00.000-06:00

Don’t be naïve like the anxious taxpayer who was visited by a revenue agent. The agent completed her audit and presented a proposal for a lot more taxes. It seems the taxpayer had claimed costs of a vacation trip for his entire family to Hawaii, arguing that he needed to personally experience snorkeling in order to achieve realism in his television drama Nowhere to Be Found. The agent evangelized as she watched the taxpayer’s eyes and mouth widen as he reviewed her proposal for more taxes and penalties. “You know, Mr. Taxpayer, it’s a great privilege to live and work in the USA,” she said. “Citizens have an obligation to pay their fair share. And we really expect you to pay with a smile.”

“Thank God,” said the taxpayer with a guffaw. “I thought you’d want cash.”

This blog will try to give you answers, the statistics, the possibilities, the strategies. Not only that, but I hope it will entertain you too, relieve your worry, and banish your anxiety by teaching you the best strategies for managing your freelancing business as you express yourself—making the process literally less taxing. Sit back and relax when the IRS calls. Change the IRS acronym from Internal Revenue Service (or as many taxpayers call it, the Infernal Revenue Service) to: I’m Really Sorry, IRS . . . but I don’t owe those taxes.

What Does It All Mean?

2010-06-16T18:06:00.000-06:00

Such questions as were posed in yesterday's posting characterized the cases of myriad taxpayers who appeared before me during my career as what was once stiltedly called an “appellate conferee.” That title gave way to the simpler “appeals officer.” But what didn’t grow simpler during my career was the Internal Revenue Code. It has grown thicker in every conceivable dimension.

Well, while you’re thinking about Doug’s chances, think about this. On March 3, 2005, Peter Jennings wrapped up the night’s newscast by saying, “Finally here this evening, one very large tax bill. The government says it has never seen anything like it before. Walter Anderson, a multimillionaire businessman, appeared in a Washington, D.C. court today, accused of failing to pay more than $200 million in taxes. The government alleges that Mr. Anderson used several elaborate schemes to hide his considerable income. It's a lot of money.” Anyway, that’s $200,000,000 smackers of taxes, indeed a lot of money. Any normal person would ask himself: with government going after the likes of Walter Anderson and getting that large a return on their investment in resources, why would IRS operatives even care if Doug deducts the measly costs of his trip to Vietnam to get pictures depicting oversized loads on motorcycles?

On August 29, 2005, the IRS reported that the accounting firm KPMG LLP (KPMG) had admitted to criminal wrongdoing and agreed to pay $456 million in fines, restitution, and penalties as part of an agreement to defer prosecution of the firm. In addition to the agreement, nine individuals—including six former KPMG partners and the former deputy chairman of the firm—were headed for criminal prosecution in relation to the multibillion-dollar criminal tax fraud conspiracy. The fraud per the IRS and Justice Department related to the design, marketing, and implementation of fraudulent tax shelters.

Again, does it make any sense to worry about the IRS devoting resources to Doug’s crummy little Vietnam trip? Even if—shame on him—he takes his family with him and deducts their costs, too? Why should the IRS care about Doug when it can get the kind of return they have on KPMG? Or the return they possibly got on KPMG’s clients, who claimed billions of dollars in tax benefits from the fraudulent tax schemes and all owed the tax back plus interest and penalties? We’re talking about billions of dollars. What’s the risk to little old Doug of the IRS throwing its resources after him for deducting one lousy trip to Vietnam? Not much? A lot? Somewhere in the middle? And if the IRS does go after Doug, what’s the risk to him that the IRS will prevail? How much will it cost Doug? Does he risk serving jail time? And what about monetary fines or penalties? Is he at risk? What about his reputation? He is, after all, an aspiring author on the possible precipice of great things. Could the publicity help him?

All good questions. Many things for Doug to think about, to learn, to consider and ponder before he puts the costs of that trip on his profit-and-loss statement on a Schedule C and attaches it to his Form 1040, exposing it to the potential ravages of a dreaded IRS agent or auditor. And maybe, just maybe, those answers and many, many more important ones like them, both for Doug and for you, are just as important as finding a perfect simile or eliminating an unnecessary gerund, finishing the last chapter of your novel, entering that disquieting contrapposto or portrait in an art contest, or acquiring an agent to sell your work or a gallery to display your sculptures.

What does it mean to carry on the freelancing of expression in a businesslike manner? How does a person maintain a complete and accurate set of books? How important is it to consult advisors and have expertise? How much time and effort does a person need to expend in the actual conduct of freelancing? Does anybody care? Questions. Many pertinent and probing questions for every freelancer of expression.

2010-06-15T15:39:00.000-06:00

Ben Franklin said, “In this world nothing can be said to be certain, except death and taxes.” The point is, you won’t live forever and you won’t escape taxation. It’s as simple as that. However, you might as well have some fun trying to escape all the taxes you can. I can help you do it.

Some writers find a way to exploit death in their writing before facing the Grim Reaper themselves. In this book I will provide freelancers of expression (writers and artisans) a way to do the same with respect to taxes. I am an expert in the field of taxation. (Note that I didn’t say tax law. If you need an expert in law, see an attorney.)

After a meeting of my writing group, two members were describing their vacation experiences. Eric had gone to India, and Doug had visited Vietnam. Another member and I lingered, asking questions and listening to stories and descriptions of places that were so different from home and contrasted so strongly with the American way.

While reminiscing about Vietnam, Doug explained that in situations where Americans would use SUVs and trucks to transport goods, the Vietnamese use motorcycles. “They tote outrageous objects on a single motorcycle,” he said. “I saw such extraordinary examples that I decided I needed to collect snapshots or else people back home wouldn’t believe me.” Such pictures ostensibly included a man on a motorcycle with a full-size mattress, a family of five, a man with a big fat pig, and two men in tandem on separate motorcycles carrying a fifty-foot, five-inch-diameter metal pipe between them.

Kelley, the other listening colleague, piped up. “Sounds like material for a wonderful picture book.” She enlarged upon the notion and explained the potential process, her entire demeanor optimistic of Doug’s prospects.

Well, enthusiasm grew like zucchini in Doug’s face. I saw him envisioning possibilities. “I need to go back to Vietnam and get more pictures,” he said. “And I have some other ideas, too.” Then, as if struck by a thunderbolt, he turned to me. “And I’d be able to write off the trip on my taxes, wouldn’t I, Walt?”

Doug’s wife hails from Vietnam. Doug was looking for a good old subsidy from Uncle Sam, probably not recognizing that it would be borne on the backs of other taxpayers, like you and me. Doug knows that the wake of my occupational ship includes a thirty-five-year stint with the IRS, twenty-six years of which involved hearing disgruntled taxpayers appeal actions of the auditors and collectors, whom taxpayers always seem to characterize as ‘overzealous.’

“I suppose I couldn’t take my family and have it be deductible,” Doug said hurriedly. Or was this seeming statement a question? Or a plea? And so a dialogue began: him asking, me trying to answer.

Well, what do you think? Can Doug deduct the costs of his upcoming trip to Vietnam? Should he? If so, could he deduct his family’s expenses as well? What are the chances Doug could prevail if audited?

The Aspiring Writer or Artisan or Freelancer

2010-06-14T22:25:00.000-06:00

Every month—more or less—aspiring writers escape. They flee marital and parental responsibilities, leaving kids, parents, spouses, significant others, and even debilitated relatives behind for a few hours, maybe even escaping work by taking leave, or excusing themselves from a social obligation. All of this they do in order to go to a nearby bookstore, a library, a community center, or someone’s home to meet with peers in writing leagues, critiquing groups, associations, and organizations . . . so driven because they enjoy conveying themselves in words. They want to share and refine their expression.

If you are one such writer, this blog might be for you. If not, it’s probably not, unless you’re an artisan equally devoted to your medium.

This blog is for writers and artisans of expression, the plodding, diligent, have-to-be writers and artists of every ilk: fiction or nonfiction, sculpting or painting, technical or escapism, poetry or journalism, photography or graphic design. Yet it’s not for writers and artisans now supporting themselves entirely through their writing or artistry.

Some who get out in this manner to such meetings or to a show or exhibit each month more or less are published, or their works are shown or represented, and, possibly, they are “known.” Some are earning their entire support or supplementing their major sources of income by writing or by selling their talent or artwork. However, most attending such types of meetings are wannabes: they want to be published, they want to be exhibited, they want to be paid, and they want to be successful. They want to profit.

Amongst the tens of thousands of these wannabes are thousands on the cusp of moving from wannabe to winner. Or perhaps they’ve been a winner and fallen off the podium but are back on the cusp of winning. This blog is written for those on the cusp. It will help teach them strategies to succeed and, in doing so, make their expression activities less taxing. It will show how to avoid an assessment from the IRS, claiming your activity is a hobby. It will show you how to mitigate mistakes in operations that may get you in trouble with the IRS.

Are you an employee or self-employed?

2010-02-27T23:01:00.001-07:00

Here is a good case to read if you wonder whether or not you are an employee or are self-employed. It was of particular interest to me since the company that was alleged to have been the employer is located in my state.
THOMAS & CAROL ROSATO

JAMES ROBERT AND KATHY MORSE

2010-02-27T22:48:00.001-07:00

Why do people do stuff like this? Making frivolous and stupid arguments that have no merit and suggest that they don't like living in the United States or contributing to its society. My heart goes out for them in their delusion and I only wish they could see the error of their ways.

By selectively analyzing statutes out of context, petitioner has reached the conclusion that petitioners' wages received for 2005 and 2006 do not constitute taxable income. Petitioner has followed in the footsteps of numerous others who have unsuccessfully attempted to find a way to avoid paying Federal income tax. We find petitioner's arguments to be wholly without merit and not worthy of further analysis. For example, it has been explained that "Compensation for labor or services, paid in the form of wages or salary, has been universally, held by the courts of this republic to be income, subject to the income tax laws currently applicable."

Why Are People So Greedy?

2010-01-09T15:17:00.004-07:00

While working for her husband’s dentistry practice, Karen Cavaretta billed insurance companies for work he hadn’t done. Why? Didn't she have enough, living as the wife of a dentist who made good money? I guess not.

She pled guilty to fraud charges, he then repaid the money, and they deducted the repayments as his business expenses. IRS didn't think the repayment should be a business expense.

You Can't Squeese Blood Out of a Turnip

2009-12-24T20:34:00.004-07:00

In Kathleen A. Vinatieri the IRS tried to collect money from a person who didn't have enough to live on if she paid her taxes. IRS wanted her to file deliquent returns before it relieved her of having to pay before it waived collection in her situation.

Palm Canyon X Investments, LLC

2009-12-17T15:13:00.002-07:00

This case involves some celebrity.

Palm Canyon X Investments, LLC through AH Investment Holdings, Inc., its tax matters partner, challenged the IRS in the United States Tax Court. The Tax Court filed its opinion on December 15, 2009. The IRS won the case. The case involves tax shelter-type issues. Palm Canyon, a single-member limited liability company owned by AH Investment Holdings, entered into some contracts known as "offsetting market-linked deposit contracts." So what? you say. Well, it was all important enough for a judge to write a 104 page opinion, including his conclusion that Palm Canyon was a farce --- a sham --- and that the market-linked deposit contracts lacked economic substance and could be disregarded. Of course, I won't be giving all the details here, but it is interesting to note that the case involves the actress, Suzanne Somer, and her husband, Alan Hamel, and the well-known "Thighmaster" exercise equipment.

Furthermore, in this case, the government was represented --- at least in part --- by two of my former colleagues at the IRS, Stephen M. Barns and David Sorenson, who were attorneys with District Counsel. David's office was two or three offices down from mine. Stephen's --- who incidentally went by Mark, his middle name --- worked in an office down the hall and then to the left a couple of offices, almost on the other side of the building. Anyway, I thought that was interesting.

Our Convoluted Tax & International Business Systems

2009-12-11T13:12:00.001-07:00

This was a win for Symantec, who sent something like 14 lawyers to the Tax Court to face off against the 7 for the IRS before Judge Foley. The Tax Court found the government's case arbitrary, capricious, and unreasonable.

If for some irrational reason you want the flavor of just how complex things can be in taxation relative to international entities and a single issue, consider reading this case, which has 71 pages and a table of contents as follows:

CONTENTS

Background

I. Storage Management Software Products

II. Product Distribution Channels

III. Intensely Competitive Market

IV. Product Lifecycles and Useful Lives

V. Geographic Expansion

VI. The Cost-Sharing Arrangement

VII. VERITAS Ireland's Operations

VIII. Procedural History

Discussion

I. Applicable Statute and Regulations

II. Respondent's Buy-in Payment Allocation Is Arbitrary, Capricious, and Unreasonable

A. Respondent's Notice Determination Is Arbitrary, Capricious, and Unreasonable

B. Respondent's Determination in Amendment to Amended Answer Is Arbitrary, Capricious, and Unreasonable

1. Respondent's "Akin" to a Sale Theory Is Specious.

2. Respondent's Allocation Took into Account Items Not Transferred or of Insignificant Value

3. Respondent's Allocation Took Into Account Subsequently Developed Intangibles

4. Respondent Employed the Wrong Useful Life, Discount Rate, and Growth Rate

III. Petitioner's CUT Analysis, With Some Adjustments, Is the Best Method

A. Comparability of OEM Agreements

B. Unbundled OEM Agreements Were Comparable to the Controlled Transaction

IV. Requisite Adjustments to Petitioner's CUT Analysis

A. The Appropriate Starting Royalty Rate

B. The Appropriate Useful Life and Royalty Degradation Rate

C. Value of Trademark Intangibles and Sales Agreements.

D. The Appropriate Discount Rate

V. Conclusion

Yikes! A Casualty Loss!

2009-12-11T12:26:00.001-07:00

In 2005, Justin Rohrs bought this nice, new truck, a 2006 Ford F-350, for $40,210.65. (Those who know me very well will perhaps know why that fact interests me.)

Anyway, a couple of months later, he went to a gathering at a friend's house where there was drinking, but he rode to and from it with someone else to avoid driving while intoxicated. After he got home from the gathering, though, he started off to his parents' house too soon. On the way, he didn't negotiate a turn --- he said there was a severe wind --- and the truck slid off the embankment, rolled over, and sustained harsh damage. Justin's blood-alcohol level registered 0.09 percent (the legal limit was 0.08 percent), so the police cited and arrested him. Justin filed a claim with his automobile insurance, but it was denied under the terms of his policy due to the DUI.

Ouch.

The next step for Justin, then, was to ask for a grace from the government in at least reducing his income taxes because of his casualty loss. He'd still have to pay for the damages, of course, or go without a truck, but at least he'd have his taxes reduced by being able to deduct his loss. He claimed a $33,629 casualty loss deduction for the damage.

IRS said no. Not only no, but they claimed that Justin was acting inappropriately by even claiming it. IRS asserted a penalty for Justin's inaccuracy.

Justin went to the Tax Court --- on his own (aka pro se).

The Income Tax Regulations provided that a crashed automobile could be a casualty loss if the damage wasn't due to a willful act or the willful negligence of a taxpayer, that is, of Justin. Justin said, naturally, it wasn't and that he wasn't willfully negligent; IRS maintained he was. IRS also said allowing Justin the grace would frustrate public policy.

Who won?

Justin did. It seems almost the very least that could/should be done considering the severe damage to his nice, new truck and the facts and circumstances of Justin's case.

Overall, the case is about analyzing the line between mere negligence --- which Justin admitted to --- and willful negligence and also what constitutes "the frustration of public policy."

Tax Protestor Antics

2009-12-08T22:06:00.004-07:00

ROBERT CHARLES & LISA JEAN ABELL weren't able to ring a bell in defense of their frivolous arguments against IRS when they appealed their lower-court loss to the Tenth Circuit. They appear to have acted more like Cain than Abell.

Start-up Expenses, Office-in-the-Home, and More

2009-12-08T16:54:00.004-07:00

JOHN Y. DING faced the IRS in Tax Court relative to what they claimed were his "business expenses." He claimed a bunch of expenses relative to his employment and a prospective business he was trying to get off the ground. It results in an interesting discussion and analysis of various matters including start-up expenses versus business expenses, rules governing an office in the home, and documentation, including the application of the Cohen rule.

Education Expenses --- Are They Deductible?

2009-12-03T18:46:00.004-07:00

This case gives a good review of applicable law:
LORI A. SINGLETON-CLARKE vs COMMISSIONER OF INTERNAL REVENUE

It involves a RN who went back to school to become more effective in her then-present duties. She realized that nursing had evolved greatly in the 24 years since she earned her bachelor’s degree, and she felt disadvantaged working with highly educated doctors.

Ronald Davenport

2009-11-04T16:40:00.001-07:00

I had to mention this case. I just had to.

I knew a Ronnie Davenport growing up. His brother, Tommy, was one of my contemporaries and best buddies. The Davenports I knew as a boy were all the most clever and interesting people. Ronnie, as I recall, was into short-wave radio, among other things. This was back before cell phones --- even before a lot of people had land-line telephones or TVs. I was always way impressed with Ronnie talking on that radio with people all around the world. It reminds me of the opening scene of the movie Contact. Of course Ronnie was no Jodie Foster and wasn't trying to contact a deceased parent. His parents were very much alive.

Anyway, the guy in this case couldn't be Ronnie from my boyhood. No way.

Ronald Davenport (of the case) faced the following proposals for more tax and penalties:

The Judge opined:

Petitioner is no stranger to the Court. The following is petitioner's history in this Court:

Well, I won't bore you with the details --- if you want them you can just read the opinion --- other than to say Ronnie did not cooperate with IRS and lost his case. He looks like the typical tax protestor, making silly, frivolous arguments that won't fly.

Two Tuesday Memo Decisions

2009-11-03T15:48:00.001-07:00

The Tax Court issued two memorandum opinions today. One involves the determination that Linda Bruen was an innocent spouse, even though that terminology always seems like an oxymoron to me. The other one has to do with the nature of income from a cashed-in life insurance policy that the Barr couple received and the accuracy penalty the government said was attributable to them not properly reporting the nature of such incom.

What's in a Name?

2009-11-01T10:02:00.003-07:00

Peter M. Comensoli challenged the IRS in Tax Court. He was represented by Matthew S. DePerno. Alexandra E. Nicholaides represented the IRS. The IRS wanted to use its lien and levy powers to collect some taxes from Peter. Peter didn't want that to happen. The judge was named Goeke --- I didn't look up the rest of his name. Some of the players in the case were Paradym Group and A. Adonu Idahosa (makes me wonder what the "A." stands for). Symphony Financial Services was a player as was TCF Leasing, Inc. So was Back Porch Workout. Some of the action took place in Kalamazoo, Michigan.

I'm wreddyornot. Who are you?

Laughing Out Loud

2009-10-30T15:49:00.003-06:00

These lines from a tax decision struck me funny. "Anthony Oropeza earned wages in 2002 and 2003 but reported zero income and zero tax liabilities because, he wrote in attachments to the returns, his income was not 'income' in the 'constitutional' sense. Mr. Oropeza’s position is, in a word, 'frivolous.' Just like we held it was the last time he was in Tax Court."

Heather Moore: ALMA vs. Maia

2009-10-01T16:16:00.001-06:00

Heather Moore was gracious enough to let me read her new novel, ALMA, and I am glad I did. I haven't read too much fiction for her intended audience, so this was somewhat new for me. I recommend it to anyone interested in having the life of Alma the Elder from the BOOK OF MORMON more fleshed out. I also recommend it to anyone otherwise interested in reading fast-paced fiction involving elements of romance, friendship, and religious devotion.

For me, the book ALMA is misnamed, though.

Its predominant character, for me, is Maia, wife of the malevolent King Noah, the chief, if subtle, romantic hero, or, if you will, romantic interest, in the novel. Maia's story is much more compelling than Alma's; in fact, Maia's story is gripping enough for me to read the entire book despite any other defects, such as why Moore starts out in Amulon's point-of-view: "Amulon stared at the king's red face," she writes in her opening line, "wondering if he'd ever hated a man more."

Now that's a nice, strong, and potent sentence (although I couldn't help smiling, and having the author's name so clearly in mind, as I read, " . . . a man MoOre.") And there's no question but that Amulon lives up to that first characterization of him, and even finds a man to hate greater than he hates the king with the red face. But, I ask, where are Alma and Maia in these first few pages? They are reference material. I don't know if I've ever started a published novel in the antagonist's point-of-view with the protagonist in the background. Do you recall any?

Well, for me, it was disturbing. In analyzing it, I couldn't help thinking of some favorite characters: "My suffering left me sad and gloomy," says protagonist Pi Patel from LIFE OF PI; "When he was nearly thirteen, my brother Jem got his arm badly broken at the elbow," says Scout from TO KILL A MOCKING BIRD. And THE ROAD starts out, "When he woke in the woods in the dark and the cold of the night he'd reach out to touch the child sleeping beside him. " It is clearly in the protagonist's point-of-view. Even Orson Scott Card's SARAH --- not that it's a favorite of mine, but it does inhabit a similar genre --- starts: "Sarai was ten years old when she saw him first."

Anyway, this Amulon character is, at the outset of the novel, a high priest in King Noah's court, an old friend of Alma's before Alma "got religion." Although, to be accurate, it's actually before Alma gets "true" religion, for Alma had been a high priest in the religious order in the king's court already. So, in its essence, the story is the juxtaposition of orthodoxy and apostasy, with Amulon serving as the prototype for the one, and Alma as the ideal for the other.

It seemed that the main characters in the novel --- Alma and Amulon, in particular, --- were drawn so sweetly good and grotesquely bad, without much (any?) ambiguity at all; that there were no real struggles with temptation or any need for repentance. Their minds were made up; they were where they were and what they had become, and it seemed there was little or no chance for them to change. Even if characters always chose right . . . or wrong --- And that just doesn't happen, does it? --- it seems some struggle with temptation to do evil or desire to repent ought to be evident, and that struggle ought to be conveyed in a work of fiction. Even prophets admit failings, weaknesses. But Alma is " . . . inside his soul . . . truly free. He was true to his convictions, his faith, his Lord. His increasing burdens were made light . . ." From outset to the end, it seemed to me.

Whether or not one accepts the BOOK OF MORMON as a historical document --- and there are adherents of the Mormon faith who don't or who place some limitations on it --- this admixture of what is clearly fiction with the chronologies and language from Mormon scripture is an interesting, and at times compelling, phenomenon. I've read Diamant's THE RED TENT, which is based upon Old Testament characters, and enjoyed it very much, but, for me, reading a character out the BOOK OF MORMON, seemed a uniquely new and exciting adventure. Of course, such an undertaking is nothing new to Moore , who has already written about ABINADI from the BOOK OF MORMON, winning, I see, various awards within a growing audience for doing so.

Now, Moore does a great job fleshing out the basic narrative of Alma and his contemporaries in her novel, using a cast of other interesting characters: Helam and Raquel, King Noah, Amulon, Jachin and Lael, Gideon, and, especially, Maia. She does so using both animate and inanimate characteristics from her source material, making the story more interesting and forceful than the original text. Readers --- at least this one --- are less likely to fall asleep or get bored reading this kind of story, where they can identify with and become more invested in the characters, the relationships, and the places the characters visit and experience, than when simply reading raw scriptures without any ancillary imagination --- not that people ever do that, of course. The orthodox believer will perhaps scoff and scorn, saying that the spirit works only through the original text. My experience, and it appears many others', differs.

At the end of the day, however, I felt closer to Maia than I ever did to Alma. But, like I said above, it was well worth my time and effort to read ALMA and to be obliged to consider more fully his life and story.

Why Isn't This Fraud IRS?

2009-09-14T21:52:00.004-06:00

WILLIAM G. HALBY, a lawyer in New York for 40 years, specializing in tax law, frequented prostitutes and kept track of his visits in a journal and purchased pornography and books and magazines on sex therapy, apparently keeping decent documentary evidence of the costs. He then claimed medical expense deductions of $76,314 in 2004 and $49,203 in 2005 for these costs.

Fraud and Other Stupidity

2009-09-12T13:53:00.003-06:00

Ron and Tricia Bell got greedy. They faced additional taxes and penalties, including ones for fraud. The Tax Court reached a decision on Wednesday.

Big bucks. Interesting story . . . well, maybe not so much. Use your imagination. Check it out if you are interested in cheats.

Another Doctor Claims His Wife's Horse Losses

2009-09-12T13:31:00.003-06:00

Wednesday, the Tax Court issued an opinion in a case involving another doctor whose income supported his wife's horsey losses that the IRS said were hobby losses. See the Phemister case to read about it. The case also covers innocent spouse, failure-to-file, and negligence penalty issues.

A New Tax Book

2009-09-09T22:53:00.001-06:00

I haven't posted here in quite a while. It hasn't felt very compelling to do so. It's not that there isn't plenty to say, or news that breaks every day relative to the tax aspects of writing or other artistic activities. It just hasn't stirred my interest or seemed very productive over against other things I've been doing.

However, lately I've been thinking about another tax book for writers and artisans. What I have in mind is collecting information from authors and artisans who have had experiences with the IRS. Or even those who haven't. What I don't know, I guess, but want to, is what people entering into the business of writing or an artistic activity do with respect to the costs they incur before they have enough income to have a net profit. Do they utilize the tax benefits of such losses? Or do they mostly just forgo them and concentrate on getting to a profitable status before worrying about taxes? I would like to do an exposé on such information and experiences, if possible. If everybody who writes and gets published is filing tax returns with losses reflecting their costs in advance of profitability but not having any problem with the IRS, it seems that would be invaluable information for newbie writers and artisans to have. And what about all the people who never get published or get their artistic endeavor off the ground, but incur costs trying to do so? Are they claiming the tax benefits and getting away with it without a challenge or are they challenged? And, if they are challenged, what is the result?

Anyway, that's what I've been thinking about. Maybe it's something useful; maybe it's not. How would I go about gathering the information? Most writers these days maintain personal blogs and webpages. There may be okay to make contact that way. Also, I might formulate a questionnaire or something to help gather pertinent information.

Also, it might be interesting to explore what types of deductions experienced and successful, profitable, writers claim relative to their tax returns and their experiences relative to such claims over against IRS and audits. I'm thinking along the lines --- and this is a somewhat dated, even out of date, example --- of somebody like James A. Michener. He must have incurred many living expenses in being away from home in doing his research to write in depth about such localities as Mexico, the South Pacific, etc. How much of what he incurred did he deduct? And I need to find contemporary authors to query in such matters.

Just some thoughts.

Rick's Writing Was for Business

2009-06-23T13:45:00.001-06:00

Rick, the writer, did have a viable business, according to the Tax Court; his writing activity was not a hobby.

What made the United States Tax Court conclude that he was in the business of writing?

First off, the court believed Rick conducted aspects of his writing in a businesslike way. He hired agents to help him negotiate prices for the sale of his screenplays.

He had a long history as writer, with publishing credits and success in the endeavor. Because he had worked in the field for such a long time, he had numerous contacts. Furthermore, he devoted a lot of time and energy to writing.

One of the biggest factors, though, had to be that he didn't have any income from many other sources to speak of. This meant that he and his wife didn't derive a great deal of tax benefit by claiming the loss he incurred.

The court also recognized that writing has a precarious nature, especially as relates to the entertainment industry.

Now, how did Rick fare in deducting the expenses he said were for writing?

Rick the Writer

2009-06-02T16:54:00.001-06:00

Maybe I've mentioned this case before. If so, I'm going to mention it again. It came out in 1999, about ten years ago now. It is a United States Tax Court case, TC Memo 1999-163 involving Rick and Ruth Richards. The Richards represented themselves before the court. IRS audited them and determined a deficiency for the year 1994, some sixteen years ago now. The deficiency that the IRS alleged was $1,328 and they asserted that the Richards had not exercised ordinary business care and prudence by alleging a penalty in the amount of $266.

Rick was a writer. He deducted a business loss relative to his writing activities. The IRS said his writing activities didn't constitute a trade or business, but comprised a hobby. For this post, I will handle that issue. Other issues will come in subsequent posts.

The Richards lived in Palm Springs, California.

Among expenses Rick claimed relative to his writing were the following:

Typewriter (ribbons and repairs)	$198
Stationery, desk and office supplies	940
Registry	680
Copies	370
Research books, magazines & trade publications	760
Must-see movies, stage plays, country and gospel concerts	1,140
Travel trailer maintenance, supplies and repairs	2,480
Research trip to Alaska	3,296
Research trip to Mexico	1,319
Miscellaneous (primarily travel expenses)	3,120
TV sets, the VCR & videotapes	569
Audio tape-recording & copying equipment plus studio time fees	560
Fax messages and responses	115
Shipping costs	1,189
Office preparation	180
Long-distance calls	1,114
Cash telephone calls	240
Total	18,684

The Richards were both in activities that were challenged by the IRS as hobbies, so it is difficult to set forth exactly what expenses were Rick then what expenses were his wife's. She was an actress. Their combined losses relative to their respective activities of writing and acting were something like the following for the years preceding and succeeding the year that was before the court:

Year	Income	Expenses	Profit/(loss)
1991	---	$28,307	($28,307)
1992	---	29,103	(29,103)
1993	---	30,616	(30,616)
1995	---	---	(24,278)
1996	$814	30,877	(30,063)

The Richards did have income from their activities from 1991 to 1993 but reported it with their wages. The income amounts were nominal in comparison to the expenses they claimed.

Rick's first job as a writer came in 1940 when he wrote stage material for Bob Crosby's band. It was intended to be funny and included lyrics, parodies, and original songs. He also ended up working for various publishers in New York. During one period of time he served in the military. In the 1950s, Rick started writing short stories. He lived in Pennsylvania and wrote 88 short stories has sold 39 of them. He also started writing novels.

The Richards actually married sometime in the early 1960s and that is when they moved to Palm Springs. Rick continued writing novels at first but soon put that aside to work in the blooming and more-lucrative entertainment business. He obtained contracts with various comedians and met producers through them. As a freelancer, he ended up writing situation comedies, and he was able to sell his work doing sitcoms throughout the 1960s and 1970s. Some of the familiar shows he wrote episodes for include The Lucy Show, The Odd Couple, Love American Style, The Addams Family, The Beverly Hillbillies, and Petticoat Junction. In 1974 he sold a screenplay to a Canadian company.

By the 1980s, Rick no longer found writing sitcoms that fun; the novelty had apparently worn off. He switched to ninety-minute television movies. However, the networks didn't cooperate and canceled their ninety-minute movies. So Rick switched too. He started writing screenplays for the two-hour timeslots the networks then wanted. In the 1980s and 1990s, he branched out, trying different things. Things start to slow down and fall apart. One project got scheduled for three different occasions but canceled at the last minute each time. Another time, Rick received an option payment of $1,500, but the company, Columbia Pictures, never exercised the option. Rick testified that various producers and directors and whatnot were interested in his work, but things just didn't work out. He tried to work out specific deals with specific individuals, around the problems and things got canceled or placed in abeyance.

Rick didn't have a regular agent. If he thought he had a deal to work through, he would hire an agent to discuss money with the executives of the movie industry. He said agents were able to get more money for his work.

Rick's mode of operation was to work on 4 to 6 different screenplays at a time, knowing that if he sold just one of them it would be quite lucrative. In 1993 or 1994 he pitched an idea about a screenplay to an agent with Creative Artists Agency. The agent thought highly of the idea and indicated he would try to market it. Rick got busy and wrote the screenplay, but by the time he went to trial it had not been sold.

Sometimes Rick wrote lyrics for country and gospel songs. He didn't write the melodies and so most of his experiences writing lyrics were collaborative. In order to facilitate his lyric writing, he traveled to numerous country and gospel concerts. However, he never sold the song.

So that's pretty much the facts the court said it dealt with in deciding whether or not Rick had a viable trade or business as a writer.

So what do you think? Did he have the requisite continuity of activity and the profit motive?

IRS Strategic Plan

2009-05-20T15:40:00.001-06:00

Contrary to what may be intuitive, IRS has a strategic plan. It is a plan that ran from 2005 to 2009. You can read it online, at IRS.gov. If you can't sleep, I recommend it. The nice thing about the plan is that it expires this year which means there will be a new one. Of course, the IRS can plan all it wants to do this or that, and just like anything else, if it doesn't have the funds to carry out the plan it is all for naught. The same is true of any government agency and it can have profound effects upon any number of things, witness the financial meltdown due to the government's failure to adequately fund agencies that oversee the financial markets.

Anyway, the strategic plan of the IRS will contain a message from the Commissioner of Internal Revenue Service, a statement of the agency's vision and mission. It will give some sense of the organization structure in charts and whatnot. It will then spin its perception of the factors that affect its achievement of its vision and link the strategic plan to the budget and its ability to perform. It will name key partners in achieving strategic goals of the agency.

Among goals listed there, you will find that IRS intended during that timeframe to improve its taxpayer service, it intended to enhance enforcement of the tax law, and it intended to modernize the IRS through its people, processes and technology. If you're interested in any of that gobbledygook you can read it there on the IRS website. Like I said, it is probably all good for sleep inducement. But you might be interested nonetheless and get something useful out of reading it. I doubt it, but maybe you'll want to give it a shot.

Bank Deposits Analysis

2009-05-19T14:23:00.003-06:00

If a taxpayer fails to file a return, there are several things IRS can do to get around that. If the taxpayer is employed, it gathers the employers W-2s and 1099s and utilizes them to construct what a return would look like. Say, however, the taxpayer is self-employed --- maybe he operates a bookstore or some other retail outlet. What does the IRS do then? Well, if the taxpayer kept checking and savings accounts, IRS might utilize those accounts to reconstruct his income from the deposits in them.

A good example of IRS doing that is a case issued by the United States Tax Court today, the case of BLAKE HYUN SEO. You can view the case at http://www.ustaxcourt.gov/InOpTodays/Seo.TCM.WPD.pdf . I'm not certain how long that link will work, though, because the opinion will only be a "today's opinion" today. However, you can do a search any time using his name on the United States Tax Court webpage and find the case.

Office in the Home

2009-05-18T16:17:00.002-06:00

Most writers I know plan to do their writing, at least most of it, at home. So I guess if you consider your writing activity a business, the temptation is to deduct every household expense you can conceive of as a business expense. After all, you work at home.

But you need to be careful and be aware of the rules. Remember, tax law distinguishes between what is personal and what is business. Generally, rent, mortgage payments, repairs on a residence and the like are not deductible. They are considered personal living expenses. You have to have some place to live. In tax administration such expenses are usually personal.

In order to get a business deduction for the use of your home you must use part of it (1) exclusively and regularly as your principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of your business, or in connection with your trade or business where there is a separate structure not attached to the home; or (2) on a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.

Now, the assumption is that you're working as a proprietor, not as an employee of someone else. If you are an employee who receives a W-2, in order for you to claim a deduction relative to the use of your home you must be able to prove, in addition to the other things mentioned above and talked about below, that the use of your home is for the convenience of your employer and that the portion of the home so used is not rented by the employer.

Now let's talk about all of that. First, exclusivity. Note that. It means entirely. It means you don't use it for anything else. Supposedly, you don't eat there, cook there, or do your wash there. You write there. Now, I know there's going to be someone out there who is a freelance writer who specializes in writing articles about cooking and producing cookbooks or some such thing. And they are saying, what about me? My writing about cooking and producing cookbooks entails more than just putting words down on a piece of paper or in a computer. Okay. I can buy that. But it's more likely that you use whatever area you use for cooking as an adjunct to your writing also for personal purposes. Where do you cook your meals that you consume? Or that your family consumes? The more you look for exceptions to what "exclusive" means in this way, the more lack of clarity it has as to "exclusivity" and the more chance you have of having it questioned.

Regular use means that you use the area for your writing on a regular basis, not incidentally or occasionally. Regular versus incidental and occasional. That's the test; only regular use qualifies.

Surprises

2009-05-15T22:20:00.001-06:00

My oldest son brought a gal home tonight for us to meet, a friend he met way back in grade school and hasn't seen for years. The young lady now lives in Boston where she works in real estate as a broker. She says times are rough in real estate right now, not a surprise to me, but fortunately she said her office handles a lot of rentals that apparently keeps her in the black.

My boy had told her about my tax book for writers and artisans. (He might be impressed." He wanted me to show her a copy, so I did and she ended up taking it with her to read. Her degree is in German and music. She aspires to opera but has had to settle for a more practical occupation. She related how difficult it was for her to fill out online her 1040 this year and how not having properly estimated and paid in estimated payments of taxes in advance had been a shock to her.

I guess it's better to be shocked than to have paid nothing and owed nothing in taxes, for that would suggest not much if anything was made. But still, it is always a good idea, almost a necessity, to keep a running account of where you are profit-wise. That way, you don't get surprised and you can change your mode of operation if you need to. It also means that you're doing a fairly decent job of keeping records.

Gabriel the Comedian

2009-05-14T14:55:00.002-06:00

In February, the United States Tax Court issued an opinion in the case of Gabriel J. Loup. Agents or auditors of the Internal Revenue Service had determined that Mr. Loup owed more taxes for his 2003 federal income tax return than he had reported or paid. The dispute revolved around his entitlement to claimed business expense deductions. IRS said he couldn't deduct expenses he had wanted to. Gabriel represented himself before the court; he didn't hire an attorney to represent him.

You have to be careful of the judge you get. In this case, Gabriel drew a judge named Wherry. Now, that has to give you pause and make you wary, doesn't it? Some might say it should be enough to let the case go and not argue it. Anyway, I suppose Gabriel didn't know he would draw that judge and decided to proceede anyway. Afterall, Gabriel aspired to a profession in comedy.

Yeah, Gabriel wanted to be a standup comedian and actor. He had some experience to tell the court about. As a matter of fact, in October 2002, he had signed a contract with the Morgan Agency for a one-year period. The agency would act as Gabriel's agent for some television commercials. Gabriel also had a regular job. He was licensed as an intensive care unit nurse and worked as a pharmaceutical company representative.

Gabriel said he became a member of the 9 Layer Dipz, a sketch comedy group, in 2002 or earlier. The group, 9 Layer Dipz, wrote, produced, and directed its own comedy shows.

On his tax return for 2003, Gabriel claimed deductions on Schedule A that totaled $16,704, $12,811 of which were listed as "job expenses and most other miscellaneous deductions" which actually represented $13,761 of expenditures limited by two percent of Gab's reported adjusted gross income for the year. He detailed the expenses on an attachment, a Form 2106-EZ, used for deducting unreimbursed employee business expenses. He also stapled an explanry statement to his return.

The first thing that should be noted is that Gabriel's tax return preparer put these expenses on the Schedule A and then detailed them on the Form 2106-EZ erroneously; they should have gone on a Schedule C. The preparer, it appears, didn't know what he was doing.

During the trial, Gabriel and the IRS argued about whether his activity relative to comedy was a hobby or not. Of course the IRS said it was a hobby and Gabriel said it most certainly wasn't. Most of the evidence Gabriel submitted was intended to prove that the activity wasn't a hobby, but most of the evidence he had also postdated the year at issue, 2003. Eventually, IRS gave up on the hobby issue, conceding it, and argued that Gabriel wasn't in a business yet as a comedian so he couldn't deduct the expenses. It basically said that Gabriel had only done his comedian routines sporadically up to the end of that year and, therefore, it wasn't a going concern. It said he failed to substantiate the expenses and said many of them were personal and not business expenses.

Gabriel provided four advertisements for 9 Layer Dipz but none of them indicated which year they pertained to. Some of them did provide the day and month of a performace but not the year. Gabriel said at least one of them pertained to 2003, but the advertisement itself said it was going to happen on a particular day, a Wednesday or some such, and that particular day on that particular month in 2003 was not a Wednesday. Ah oh! Also, it became apparent that Gabriel had created a log that didn't coincide with anything else and appeared to be made up. Double ah oh!

The evidence indicated that all of Gabriel's performances with 9 Layer Dipz occurred in 2004 not 2003. Even the contract Gabriel had entered into in 2003 was not helpful because it didn't establish that he had ever performed as a comedian or actor in 2003. The court concluded Gabriel had not demonstrated active involvement in acting or comedy in 2003.

Gabriel lost his case because he didn't have his facts straight, didn't have his evidence properly lined up, wasn't entirely prepared, didn't have a business plan, and probably another few dozen reasons that could be listed. Preparation precedes power. If you're not prepared, don't expect to have any power to persuade a revenue agent or a tax auditor, or, for that matter, the United States Tax Court over agains what an agent of the IRS says.

April 15, 2008 is this week

2009-04-12T23:35:00.002-06:00

Wednesday is the due date for filing individual income tax returns. It is a day to account for income earned in 2008. The law actually gives taxpayers a grace period from January 1 to April 15 to settle up for 2008.

Lots of taxpayers don't recognize that the income tax system taxes them throughout the period of their efforts and pay. A person owes tax throughout the particular year they work; it is a pay as you go system. Therefore, taxpayers who work as employees are required to have income taxes and FICA withheld and paid over throughout the year that they work. Self-employed individuals are required to make estimated tax payments to cover the taxes they will owe on the income they earn as they go along. If the withholding or estimated tax payments aren't adequately sufficient, penalties can result.

In any event, if the taxpayer gets in trouble in a subsequent year for what they put on their 2008 income tax return, and they have to pay additional taxes, they will also have to pay interest calculated from April 15, 2009. On the other hand, if a taxpayer discovers an error they made on their 2008 income tax return sometime next year or the year after, and they make a claim for additional taxes to be refunded because of their mistake, the government will owe them interest on the amount due to them because of the same rationale. Now, for what it's worth, Congress didn't make it entirely evenhanded. The interest rate you pay on underpayments of tax is in excess of the interest rate you receive on overpayments of tax. Now, you would have guessed that, wouldn't you? You know, you are dealing with politicians who were elected to represent you and your government.

WRITE NOW

2009-04-07T15:22:00.001-06:00

An old joke goes that the Postal Service recalled a new stamp because they pictured Internal Revenue Service agents on them. The problem was people couldn't figure out what side they should spit on

We've come a long way. We don't spit on stamps anymore.

How about revenue agents? Would we just as soon spit on them? One theory I have about the current economic meltdown has to do with the inadequacy of our Congress to fund the enforcement of the laws that it has enacted, including the Internal Revenue Code

Another witticism asks, "What do you call twenty-five tax auditors buried to their chins in cement?""Inadequate cement."

This kind of thinking, I believe, got us to where we are financially as a nation.

If you're going to be a writer professionally, act professionally. Write! Take writing classes. Formulate a business plan. Join a critiquing group. Attend a writers conference. Pitch what you have written to publishers and agents. Submit pieces to contests. Keep business records. Model an exemplar. Get published. Write!

MISCELLANEOUS ACCOUNTING STUFF

2009-03-23T10:30:00.001-06:00

This year it is likely that a lot of people have lost value in their investments, but it doesn't necessarily follow that they will have losses on their income tax returns that are due beginning April 15. However, some may have losses from other than investment. If they were ripped off, they can take a theft loss. But there are a lot of ifs even in that. A person has to make sure there is not some possibility of a recovery through a lawsuit or some other means. Timing is also important. The theft loss has to have occurred during the taxable year it is claimed.

Sometimes all of the qualifications and criterion stink like Yellowstone sulfur pots.

Our elected officials who make the laws are often fatheads. If they weren't, we probably wouldn't be in this financial mess we are in as a nation.

Accounting is a yawner and accountants are... well, lackluster. Uninteresting. Boring. Nonetheless, it is important if you are in a trade or business, to pay attention to at least rudimentary accounting. That doesn't necessarily mean you have to know what debits and credits are or that you have to hire a professional accountant like a CPA. But if you do choose to hire somebody to help you, make certain the individual is someone you can trust. And I would say, don't continue to give that trust without checking up yourself on the individual and their work.

Ultimately, you are responsible for your system of accounting and what you claim on any return. The accountant is not generally responsible. There are exceptions of course, but this involves the law and by now you should know that the law always has its complications and exceptions, etc.

Sloppy books and jumbled records can point to a hobby. You want to avoid that.

RICHIE, THE ARTIST AND ACCOUNTANT

2009-03-07T11:52:00.001-07:00

Congress makes plans. It plans on some people and businesses paying taxes --- but not everybody. It exercises intricate legislative planning to allow certain contributing constituents to avoid taxation, but not others. Often when the public discovers hidden taxes, Congress's solution is not to do away with the concealed taxes, but to hide them better. In similar fashion, you have to plan well and to follow your plan to show that you are in business to make money, whether or not you have made money yet.

Ritchie --- my nickname for him --- from Chicago attended Northern Illinois University between 1971 and 1977. He majored in art and minored in accounting, quite a combination. He never did graduate. But by 1978 he had passed the CPA exam and was in 1983 in Illinois practicing as a CPA. Between the years of 1978 and 1984 he held various positions as an accountant.

From 1992 to 1995, Ritchie operated his accounting and artistic activities out of the building where he both worked and lived. He started treating his artistic and accounting activities in 1984 as sole proprietorships. That is, he filed two Schedules C. Those activities from 1984 to 1998 reported the following losses and profits:

Year	Artist Activity	Accounting Activity
1984	($544)	($3,272)
1985	(1,966)	6,334
1986	(617)	7,201
1987	(1,978)	10,063
1988	(7,959)	9,518
1989	(27,638)	16,824
1990	(27,300)	19,977
1991	(26,930)	26,930
1992	(31,774)	17,385
1993	(13,419)	13,419
1994	(18,384)	20,821
1995	(10,922)	19,951
1996	(934)	26,888
1997	(1,586)	17,737
1998	(4,071)	-0-

Richie never garnered much gross income from his artistic activities. His gross income from artistry from 1992 to 1995 was only $770, $320, $266, and $357, respectively. Thus, we see that his personal maintenance and sustenance all came from his accounting work. When he got audited by the IRS, he was able to produce good financial records to show that he had incurred all of the expenses that he had claimed. What he didn't keep, however, were records of a budget for financial projections for the artistic activity. He didn't predict the costs he might incur in attempting to develop his artistry. Thus, he hadn't planned well. So at trial it didn't go all that well for him.

Ritchie had at first decided to create a commercially viable product from nude drawings. It apparently didn't work out. He also tried fashion illustrations and spent lots of money for props and materials. That also never worked out. He never received much of a clientele and obviously never earned anything from it. Next he tried portraitures and then installation art displays. Maybe he did those two concurrently, I don't remember. Anyway, for $1,200 he placed two advertisements in his newspaper to solicit work. Between 1992 and 1995 he received two commissions for portraitures that generated about $850. From 1992 to 1995 he also created four displays of installation art --- of peppers, dolls, pumpkins, and cucumbers --- which he exhibited in front of his residence, trying to sell them or the concept. The media did two newspaper articles on the dolls in 1994, and mentioned it in another newspaper article in 1995. They apparently weren't too upbeat on peppers, pumpkins and cucumbers. His income from installation displays totaled a measly $88.04.

IRS audited Richie. First it took on 1988 through 1991. He lost in the Tax Court. That didn't deter him from claiming additional losses from 1992 through 1995. Again he took the matter to court. The court in the new case said:

[Ritchie] has not made any significant changes in the operation of his artist activity, during the years in issue here, that would create a market or allow him to benefit from a market for his artwork or allow him to make up for his substantial losses. In [his earlier case before this court], we explained [that] 'the large unabated expenditures, the absence even at this late date of any concrete business plans to reverse the losses, and the manner in which [Ritchie] conducted his artist activity lead to the conclusion that this was not an activity gauge tin for profit.'

Make your business plan. Live by it. It should change and develop just as a new baby grows and matures.

See Richard A. Stasewich versus Commissioner, TC Memo. 2001-30 and TC Memo. 1996-302.

PREPARATION PRECEDES POWER

2009-03-02T11:01:00.001-07:00

Sarah Lesher had a couple of appalling encounters with the IRS

She didn't adequately prepare before claiming her losses.

From 1976 to 1980, she was employed at Yale University as a research associate and a computer programmer. Eventually she learned about a publisher of travel guides that needed information for a revised edition of an African travel guide. Sarah got in contact with the publisher and received information regarding the submission of articles for the travel guide.

Sarah travel to Africa in October 1980 and then to Israel in January 1981. While in Israel, ostensibly to gather information for her writing activities, the Weizmann Institute employed her as a computer programmer. She bought a typewriter and wrote a draft of a fictional work based upon her adventures in Africa and Israel. However, she apparently didn't keep any type of business or accounting records of her writing activities. Nope, Sarah thought she could get by without making any debits or credits or keeping any other kind of financial or non-financial records.

As writers anxious to deduct our costs in writing and researching, we need to pay attention to Sarah's case as an example of how we might do things better than she did.

In September 1981, Sarah left Israel for Europe and their return to the United States at the end of November. During 1981 she incurred a total of $9,847.13 in expenses connected with her travels. She deducted it on her Schedule C of her Form 1040 for 1981. Once again in 1982, Sarah traveled to Africa, possibly for research and gathering material for the travel guide she had found out about earlier. She resumed working as a computer programmer there.

But apparently Sarah lacked experience writing any type of literary work prior to her trip. She hadn't published or sold anything and didn't sell or publish anything she wrote with respect to her travels by the time she got to the Tax Court trial. And by then she still hadn't engaged a literary agent to help her publish her work --- the Tax Court judge clearly didn't know how difficult it is to get a literary agent. It apparently didn't need one to publish its opinions on Sarah's cases.

Sarah didn't ever show the court that she had traveled to Africa, Israel, or Europe primarily to write, or that she had remained in Israel in 1981 to author literary works that could make her money. The court ended up saying that Sarah had used her fiction manuscript as a pretext to claim her travel as a tax deduction. Essentially, the court said that Sarah's fiction was a fiction.

Sarah actually introduced several hundred exhibits, including a copy of the draft of her novel. The submissions included correspondence and information concerning the accomplishments of her ancestors, her friends, and her acquaintances. It detailed her personal life, her activities for many years before and after the years in issue, and it even gave the backgrounds of various authors. Nonetheless, the court said Sarah had used her draft novel as window dressing to support her claims to deduct travel expenses.

Plan, plan, plan on it.

2009-02-22T15:33:00.003-07:00

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.

HOW MANY YEARS

2009-02-21T14:48:00.002-07:00

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

SCHEDULE C

2009-02-19T14:27:00.004-07:00

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.

MAKE THINGS HAPPEN

2009-02-04T15:35:00.001-07:00

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!

GET CRACKING

2009-01-30T21:31:00.001-07:00

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

2009-01-28T21:19:00.002-07:00

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

2009-01-27T20:35:00.003-07:00

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

2009-01-17T12:58:00.002-07:00

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

2009-01-14T23:36:00.002-07:00

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.

2009-01-07T20:52:00.004-07:00

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

2009-01-01T14:21:00.002-07:00

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.

WHAT IS A PROFIT MOTIVE

2008-12-28T16:14:00.002-07:00

The term "trade" and the term "business" are very important to writers and artisans who want to benefit relative to their income taxes. Nonetheless, the terms "trade" and "business" are undefined in Title 26 of the United States Code, otherwise known as the Internal Revenue Code. There is also no definition given in the federal regulations, an explanatory adjunct to the Internal Revenue Code. Hence, any definitions that apply have arisen in the context of court decisions. The courts have developed a couple of definitional elements. The one relates to the writers' or artisans' profit motive. The other relates to the scope of activities. I mentioned in the previous posting the notion that activities have to be on-going in order for there to be a business or trade. Additionally, there has to be a profit motive.

What is a profit motive? Plain and simple: you do your writing work or artistry because you want to make money. However, the courts have decided it isn't enough to subjectively say you want to make money to satisfy their eventual conclusion that you have the necessary motive. Just saying it doesn't cut it with them. You have to enter into the activity with the good-faith intention of making a profit. You have to believe that a profit can be made from your writing or artistry. Reasonableness has nothing to do with it. A mere hope will not cut it, though. The hope has to be accompanied with specific plans of how you are going to make money. Otherwise the writers' and artisans' assertion is not believable.

Is that all crystal clear? I know it isn't. Next time, I'll illustrate it further by telling you about the taxpayer who claimed he had created a cold fusion system that would solve all of our energy problems.

CARRYING ON

2008-12-22T11:12:00.007-07:00

To "carry on" is to continue doing, pursuing, or operating, according to my Merriam Webster dictionary. That is the way it is used in the phrase "carrying on a trade or business." As writers and artisans, if we want the grace that allows us to deduct our expenses relative to such activity, even if they result in a loss, we must make certain that we are carrying on our writing or our artistry.

"Carrying on" can also have a negative connotation. When I used to work for the government it wasn't unusual for those I worked with to be "carrying on" about this or that. They were complaining, usually. I haven't been above and beyond "carrying on" in that vein myself.

For the purposes of writers and artisans and others who do freelancing, with respect to coming within the terms of the grace that allows you to deduct business expenses, to meet the "carrying on" test not a great deal is expected. Activity is the key. Sustained activity. If you travel to Las Vegas once or twice a year hoping to make money gambling, that won't meet the "carrying on" criteria --- for a number of reasons, one of which is that you are not carrying on the activity in a sustained manner. You are not continuing to do, pursue, or operate.

A Hierarchy of Importance

2008-12-19T22:43:00.002-07:00

There is a hierarchy of importance in the words and phrases quoted in the last posting. The meanings of "carrying on" and "trade or business" are more important than the meaning of "ordinary and necessary" because they have broader impact. As writers and artisans doing freelancing and worried about taxation and minimizing taxes, it is important to know the hierarchy. Next time we will talk about what it means to carry on.

So for now, at ease and carry on. Sayonara.

2008-12-17T21:01:00.004-07:00

. . . There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business . . .

So reads the salient portion of Section 162 of the Internal Revenue Code. Section 162 goes on and on like I-80 across Nebraska. Read it at your own risk, but there is nothing ordinary or necessary in doing so. We will focus on the meanings of the above words and phrases to see if you as a writer or artisan doing your work as a freelancer qualify for a saving grace.

THE GRACE THAT CAN SAVE

2008-12-16T12:53:00.002-07:00

In most decisions of the United States Tax Court, you'll find a phrase something like the following one: "Deductions are a matter of legislative grace, and the taxpayer bears the burden of coming within the terms of a particular statute." If you don't believe me, go to the webpage of the court and conduct a search, and you'll see. You see, "grace" comes up so often because to escape taxes on any income you need a "grace." Believe me, you need grace. So as writers and artisans who freelance, you need to know which particular statutes provide the graces you need.

Now, you might be saying, I am a new writer or a new artisan, and I haven't made any money yet, so I don't have any income. My question back to you is: so how do you live? You don't have any income, or you don't have any income from writing or from your artistry? No income from freelancing at all? If you don't have any income, you don't owe any tax. No income: no tax. Income: maybe tax. It depends upon grace, lovely grace. She's a comely lady.

So what grace do we need to focus on mostly? We need to consider section 162 of the Internal Revenue Code. Don't let the sun go down without considering section 162. (Photograph by Michael Graebler.)

ONLY GRACE CAN SAVE INCOME FROM TAXATION

2008-12-15T23:04:00.001-07:00

A common dictionary definition of income is the amount of money or its equivalent received during a period of time in exchange for labor or services, from the sale of goods or property, or as profit from financial investments. (The American Heritage® Dictionary of the English Language, Third Edition copyright © 1992 by Houghton Mifflin Company.)

This definition, however, is not expansive enough as it pertains to income taxes in the United States of America. For example, let's say that you inherit a piano. Inside the piano you find $10,000.

Now, you didn't get the piano due to labor or services that you performed to work for anyone, nor perhaps do you plan to sell the piano, and the piano was certainly not a financial investment that you made. However, your retention of the piano may end up being an investment if you retain it, and it increases or decreases in value. In the United States, the value of the piano you receive in an inheritance is income. The same is true of the $10,000 windfall. Whether or not you will end up paying tax and in what amount though is another matter altogether.

In the United States the concept of income is intended to be as expansive as is possible. At first blush, such expansiveness seems overblown. The politicians who designed the system, though, made it work to their advantage. Relief from taxes on income could only come from grace granted by elected officials. Senators and Representatives. The President of the United States.

How convenient. Now, the critical question is what are the most important graces granted to help writers, artisans, and freelancers? That's coming up.

Taxpayers' Rights? What about Freelancers' Rights?

2008-12-13T21:10:00.008-07:00

Taxpayer rights? You've got to be kidding, right? There is no escape from tax, is there? Death and taxes are certainties.

Well, forget the rights of a taxpayer for a moment. What writers and artisans who haven't yet had enough success to rely on a retinue of CPAs and attorneys for professional help want to know is what their rights are as writers and artisans until they can afford such experts. Can they do anything before they've even made the first buck from their writing and artistry? Is that possible?

How do the concepts expression and taxation intersect? What are the responsibilities of writers and artisans relative to their expression over against taxes? More importantly, what are the opportunities for writers and artisans in reducing or eliminating their income taxes?

Remember, though, last post we said all income is taxable. Actually all income is taxable from whatever source derived. So we must look for some deliverance, right? What can save writers and artisans--those who are freelancers--from paying taxes on all income?

Grace? I used to know a girl named Grace. She liked a guy named Michael, nice girl . . . but that's another subject. I mean grace: a favor rendered by one who need not do so. More on her . . . er it, next.

Uh-huh. Grace.

We Live and Die; We Pay Taxes

2008-12-12T12:59:00.003-07:00

It is well established that in life we face two certainties: death and taxes. We will all die, and it is likely that we will all pay taxes. Now I suppose it could be argued there are exceptions. Religious folks often accept the immortality of various saints or prophets. Likewise, many cultures exclude the poor and needy from taxation. However, as writers, artisans, and freelancers, we can probably accept the general premise. We will all die; we will all be taxed.

Given these two certainties it behooves us as we go about our writing, artistry, and whatnot, that we exploit both death and taxes to our advantage. How we go about it in our writing and artistry varies. For example, the picture portrayed in this posting certainly utilizes a symbol of death to make a vivid statement relevant to a cholera outbreak in earlier times. In a section of an unpublished novel I took to my critiquing group last night, I had my protagonist's best friend killed off by the antagonist's hireling by running him down with a vehicle in a parking lot.

The odd thing about death is that we can never accurately report on it ourselves. It needs our imagination to conceive it. Accordingly, it has played and continues to play such a big role in literature that it is difficult to get your arms around it or to fully use it up. Writers and artists and are always conceiving new ways of making it seem real. Perhaps, more importantly, the consideration of death in some sense is the consideration of life.

Taxes are another matter. We all experience taxation. If we don't pay income tax because it doesn't apply to us, we pay sales taxes, or taxes when we buy various tickets to be admitted to entertainment, or a fare, including taxes, to ride on public transportation.

So we are constantly confronted in life with escaping death and taxes. How do we go about it? How do we escape death? How do we escape taxes? Those are questions I wish to explore here to some degree, particularly the latter: escaping taxes. I happen to know something about that because I've spent an entire career involved with taxes. More specifically, income taxes.

I also want to explore the other question, escaping death, because it plays such an important role in writing and in artistry. In literature, we constantly try to understand death and its implications. We utilize conceits associated with it like the afterlife. We contrast love with death. Our music often makes it a theme. I think, for example, of "O Danny Boy" as Ronan Tynan sings it.

Think about this. In the United States of America people are subject to an income tax. The basic principle in the US tax system is that all income from whatever source derived is taxed. Think about that, and I'll cover it some more later. Remember though, all income.

DEATH & TAXES

2008-12-10T21:01:00.004-07:00

At least monthly, sometimes more, sometimes less, I escape. Perhaps "escape" is too strong a word. Let's put it this way: I leave the comfortable confines of my home and the company of my endearing family, leaving behind my marital and parental responsibilities, and I make my way down to the Barnes & Noble store in my community. There the Wasatch Writers Chapter of the League of Utah Writers meets to discuss writing or to listen to workshops or lectures by writers and freelancers who usually have more experience than we who attend have. Our guests are interested in sharing their writers' know-how and expertise.

I enjoy these meetings. Maybe you do something similar. Maybe instead of going to your nearby bookstore you go to the library or community center or someone's home to meet with your peers in writing leagues, associations, and organizations to enjoy their company and discuss your passion as writers, artisans, or freelancers of various stripes.

If you are such an individual, this blog might help you. If not, perhaps it's not for you. Check it out, and see what you think. It is intended primarily for those at the threshold of a business as a writer, artisan, or a freelancer. Its focus will be upon taxes and death as they pertain to writers, artisans, and freelancers. At least that's the plan.

Benjamin Franklin's statement about death and taxes has become ubiquitous. He said, "In this world nothing can be said to be certain, except death and taxes." One thing I have learned in all my years is that it is often difficult for regular folks to get a handle on either one of these subjects. In the days and months ahead, I hope to explore the subject as they pertain to artisans and writers who do freelancing. I hope to gain some sort of audience, but we shall see how that works out.