This question is directed towards paid freelance writers of RPGs- Can you write off RPG material (books and book related materials)as business expenses? I'm definitely going to ask a tax consultant but I was wondering if other freelancers have run into this as well. I'm still pretty small potatoes, but I have already signed two paid contracts this year for work and I'm expecting to do more. Also, as most people know, when researching a company, it's a good idea to sample a particular product line you might be interested in writing for which costs money. Also, to stay current with the rules, until things are released onto the PRD, you need to buy any official Pathfinder book. I still need to research exactly how I go about claiming income earned from freelancing and if their is a minimum one has to make first of all. Thanks, everyone!
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Not a tax preparer, but I have kept all my receipts and online order histories to write RPG and non-RPG book purposes off at the end of the year. If you make over $600 from a single company, they need to send you a 1099 form (and you should be setting aside anywhere between 30 and 40% of your income for taxes).
You might want to check into seeing what the rules are for writing off a portion of your rent and utilities for a small home office (as well as checking into your insurance company for a small business policy). If you're just doing a little bit of work here and there, it might not be worth it, but then again, it just might.
Cool, thanks, I didn't even think of the home office. It's tough because I don't know what my net result of profit will be at the end of the year but the freelancing is pretty steady right now, just this will be the first full year of it so I can't even estimate what I'll earn. One of my friends who ran his own publishing company suggested it because, hey, I am buying the books and I am using them to try and make some money. Now, to find a good tax advisor...
That's basically what I'm looking at doing. For example, if I pick up "Ultimate Races" when it comes out, that's an expense on my part to keep up with rules. As a single guy with no dependents, I love me some tax write offs besides my mortgage and charitable contributions!
One question that does pop in my mind; Liz insightfully mentioned that over 600 bananas means the company provides you with a 1099 form. Would I at least need to meet that threshold before I could write off anything to prove to the IRS that it is indeed legit? I don't know if I'll met that from a single company this year, but total, I'm not sure as like I said, I have two paid contracts coming due soon and new work in the pipeline as well as some other potential stuff possibly maybe happening. I suppose that if I were audited, I could produce signed contracts, but I would prefer to not be audited.
Contributor, RPG Superstar 2008 Top 6
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Just be honest and keep good records. It's legal to deduct without the 1099. The IRS isn't likely raise a red flag on you for deducting against a small amount of freelance income.
Once nice thing about freelancing for Paizo, I feel safe deducting all their print products, as I never know which ones I'll need.
Congratulations on breaking in to freelancing, by the way.
Thanks for the congrats, Russ! And that's very helpful information. I don't expect to get audited, but I want to make sure what I'm doing is legit. Also, when I talk to a tax person, it's helpful to have this information to explain what I'm doing. And now I know to print out my Paizo order sheets and request a receipt or the local game store.
I'd also like to congratulate you, John.
I never considered the tax implications surrounding the purchase of RPG material. I'll be asking a South African tax consultant about this when our next submission cycle comes around. Thanks for bringing it up.
I'd never considered deducting printed RPG books, but I sure will for my next round of tax filing. I've deducted GenCon expenses (or a portion thereof) before. I don't bother with deducting anything for the home office, because it's really fiddly and not worth the bother to me.
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As a tax attorney in the US, I'd urge caution in deducting 100% of your books/convention expenses. Remember that there is clearly a hobby aspect to your chosen career path and if you went to trial over your expenses, you would have the burden of demonstrating that you properly allocated between professional and personal pleasure.
If you're consistently reporting losses year after year, then you may face 26 USC 183, the "hobby loss" restriction.
In short, consult a professional. If their response is an automatic "sure its always deductible, no problem" then RUN!
Dude, being able to call my RPG books a tax deductible expense (research material) is one of the reasons I stopped talking about freelance writing and started actually doing it. No, I'm not kidding. Check your local laws. What constitutes an expense changes from state to state.
Note: I always show a profit every year (even if it is a small one) just to keep the tax man from looking too close.
Double what Forgottenprince said. A good tax preparer will point these things out (I use H&R Block myself because I'm one of those people that goes "Cannot brain!" when it comes to anything above the 1040-EZ).
I live in NH, so I'll check out the laws. I would hope that the Paizo hardcovers would count as well as adventure modules (and I buy way more of those than I can play). But this is good information as I'm afraid a tax person might not exactly understand what I'm doing like, "You write stuff for Pathfinder, you mean the car?"
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I live in NH, so I'll check out the laws. I would hope that the Paizo hardcovers would count as well as adventure modules (and I buy way more of those than I can play). But this is good information as I'm afraid a tax person might not exactly understand what I'm doing like, "You write stuff for Pathfinder, you mean the car?"
If your tax person can't grasp freelance writing for pathfinder or D&D, they don't have much business being in tax.
I can't speak to the US issues but up north here, there is an analysis to go through that would make it pretty straight forward. Step one would be figuring out if you had a business, and step two would be characterizing your expenses and seeing how and when you could deduct them.
Boring Canadian Tax stuff.
Step One
In a nutshell, if a taxpayer is carrying out an activity with the intent of earning a profit and they are conducting themself according to objective standards of businesslike behaviour then they are running a business even though it might have some hobby or personal elements.
They are then entitled to deduct expenses incurred in order to earn that business income and even generate losses (subject to the limitations in s.18 through 27 and the reasonableness limitation in s.67). Things like a home office would be deductible provided you meet the test for having a proper home office.
Step Two
Books and things like a computer get a little more complicated however - purchasing those might not be an expense, they might be capital property. They are equipment that provide a lasting benefit. You would have to write off their cost over a period of time. A computer has a depreciation rate of 30% a year (Class 10). Word Processing software or Adobe photoshop etc, is Class 12, you can write it off at 100%.
Books are tricky. I wonder if there is case law on books or instruction manuals.
[edit] Books are class 12 as well and can be written off completely in a year and deducted against your business income[/edit]
Why does this matter if you can write them off in a year? If you sell your books you have to pay any money you deducted back.
Anyways, if someone can keep a portion of the american version of that in their head, then the concept of freelance writing shouldn't tax them.
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I think his concern is more that they may not grasp pathfinder (or roleplaying games) than freelancing.
The US tax laws are fairly consistent with the approach you described in your spoiler, some minor differences. Biggest may be in determining whether a given line of income/expenses is truly for profit or a mere hobby. Under our case law, that's not always an easy call. As a gamer/lawyer (or lawyer/gamer) I'd love to litigate that issue. Heck, I'd be willing to take either side.
But that's not to say I'd recommend taking an aggressive position in what expenses to claim. Hence my earlier post.
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Back in 2002 we had some strong direction from our Supreme Court that it wasn't the place of courts or the revenue authority to substitute their judgment for that of a business person when determining whether or not an activity was a business.
The Duke of Westminister is alive and well up here for the most part. We have avoided the sham doctrine, substance over form and most business purpose tests.
Are you folks able to get an advanced ruling from the IRS about whether something is tax compliant? You can pay a fee here and get a binding interpretation from the revenue authority on how they will handle a given specific fact set.