Schedule C

• Writers use Schedule C for form 1040 to file their writing income and sometimes losses. You enter code 711510 on part B, next to the line that identifies your principal employment. This indicates you're an independent artist, writer or performer. When you use Schedule C, the IRS requires that you qualify as an active participant in the business. According to the instructions for schedule C for 2010, your primary purpose must be to make an income or profit, and you must engage in the activity with "continuity and regularity."
  
  

Success Is Not a Factor

• The IRS doesn't make a judgment about whether you're successful or not. It simply wants to know if you worked to make money, and what income you earned or expenses you incurred from the activity. Struggling writers with a novel may have hundreds of dollars in postage from sending it out to agents or publishers but never receive a penny back if no one publishes it. Published or not, the cost is still a business loss.
  
  

Time Limit

• If you file two years in a row with a loss, the IRS might suspect your motives by the third year. The first year, the IRS might let it slip, allowing that you simply had a rough year. By the second year, the auditors might raise eyebrows and think you need another line of work, but it's not their place to judge. However, if you don't make money the third year, it will start to appear that writing is just a hobby you're using to write off other income, and you could receive an audit from one of the gang at the IRS.
  
  

Burden of Proof

• If you are a writer who hopes to earn a living from the sale of manuscripts, stories and articles, but you haven't made any profit after several years, you still might be able to justify the expense and write it off. However, you do have to keep impeccable records and show you work at the process regularly and conduct it as you would any business. Keeping track of your time, articles written or books written and submitted can help you prove you're a business and keep the deductions.
  
  

Business or Hobby

• If you try your hardest to prove your writing is a business, but you lose the battle, the IRS calls it a hobby, and you can only write off up to the amount of income you made as a writer but not offset other income with a loss. You use schedule A, itemized deductions, to record the expenses.