You can register online by fil ing out an
Canada, especially if it will be seen or used electronic application form and paying the in the United States.
fee by credit card. Or, you can download
the application and mail it in. For detailed
guidance, visit the Canadian Intel ectual
Copyright Registration
Property Office website at www.cipo.ic.gc.ca.
Copyright registration is completely
optional. Unlike in the United States, it is
Registration fee
not necessary to register to file a copyright
The fee for registration is $50 in Canadian
infringement suit in Canada. The benefits
dollars if the application is submitted
of registration are much more limited than
online; $65 if it is not. Registration is valid
in the United States. A person who registers for as long as the copyright for the work
a work in Canada receives a registration
exists. Once you register your copyright,
certificate from the Canadian Copyright
you do not have to pay any additional fees
Office. The certificate serves as evidence
to maintain or renew it.
that your work is protected by copyright
and that you—the person registered—are
Additional Information
the owner. This means that in the event of
a legal dispute, you do not have to prove
The Canadian Copyright Office has
ownership; the burden is on your opponent produced a very useful “Guide to Copyrights”
to disprove it. This will prove modestly
that can be downloaded from the Canadian
beneficial if you ever sue someone for
Intellectual Property Office website at
copyright infringement in Canada. It may
www.cipo.ic.gc.ca. There, you can also
be particularly helpful if you need to obtain obtain copies of the Canadian Copyright
a quick court injunction against a copyright Act and Rules.
pirate to stop an infringing activity.
CHAPTER 12 | INTERNATIONAL COPYRIGHT PROTECTION | 341
There is an excellent one-volume guide
relationships and at international book
to Canadian copyright law called Canadian fairs (the Frankfurt, Germany, book fair is Copyright Law, by Lesley Ellen Harris. It’s
the most important). If you have retained
published by Wiley.
all your foreign rights and have an agent,
Information about all forms of
the agent will market your foreign rights
intellectual property in Canada may be
through foreign subagents.
found on the website maintained by the
If you’ve retained your rights and don’t
Canadian Intellectual Property Office at
have an agent, you need to retain one. You
http://cipo.gc.ca.
can use an American agent who has contacts
with foreign subagents, or directly contact
agents in the particular countries in which
Marketing Your Work in
you wish to sell your rights. The latter course
Foreign Countries
will save you money since you’ll only have to
If you are sharing ownership of foreign
pay a commission to the foreign agent, not to
rights with your publisher, the publisher
an American agent as wel . The publication
usually markets them through foreign
International Literary Marketplace lists British
agents with which it has established
and other foreign agents.
l
C H A P T E R
Copyright and Taxation
13
Writers’ Income Tax Deductions ...................................................................................................344
Is Writing a Hobby or Business? ..............................................................................................344
How to Show the IRS Writing Is a Business.......................................................................348
Types of Expenses Writers May Deduct ............................................................................. 354
Taxation of Copyright Income .........................................................................................................357
Income Reporting ............................................................................................................................357
Capital Gains vs. Ordinary Income ........................................................................................ 358
Paying Your Taxes ............................................................................................................................359
344 | THE COPYRIGHT HANDBOOK
This chapter provides an overview of terrorism for the last two years. In the
federal taxation for writers who create course of his research and writing, he has
copyrighted works. It is for self-
incurred substantial expenses. This year,
employed writers—that is, writers who create these included:
their works on their own, not as employees.
• $3,000 in travel and hotel expenses for
It focuses on tax issues of particular interest
trips to the Middle East and Europe to
to writers, especial y deducting writing
interview subjects for the book
expenses and the hobby loss rule.
• $2,000 for a portable computer
• $2,000 in home office expenses, and
• $3,000 for payments to a research
RESOURCE
assistant.
If you handle your taxes yourself,
These amounted to $10,000 in writing
you’ll need to obtain a more detailed book
expenses for the year. Naturally, Charles
specifically on taxation. Many books are available would like to know if he can use these including Deduct It! Lower Your Small Business
expenses to help reduce his tax burden—
Taxes, by Stephen Fishman (Nolo), and Home
that is, he wants to know if he can deduct
Business Tax Deductions: Keep What You Earn,
his expenses.
by Stephen Fishman (Nolo). The IRS also has free
A tax deduction is an expense or the
publications on every conceivable tax topic. Some value of an item that you can subtract from of the most useful include:
your gross income (all the income you earn)
• Publication 334, Tax Guide for Small
to determine your taxable income—the
Business
amount you earn that is subject to taxation.
• Publication 505, Tax Withholding and
The more deductions you have, the lower
Estimated Tax
your taxable income and the less tax you pay.
• Publication 937, Employment Taxes and
Information Returns
• Publication 533, Self-Employment Tax, and
Is Writing a Hobby or Business?
• Publication 535, Business Expenses.
Can Charles deduct his writing expenses?
You can obtain these and all other IRS publi-
cations from the IRS’s website at www.irs.gov.
The answer is, “It depends.” To determine
whether or how an expense can be deducted,
it is first necessary to figure out how Charles’s
Writers’ Income Tax Deductions
writing activities should be c
haracterized for
tax purposes—as a hobby or a business.
Charles, a freelance writer, has been
working on a book on international
CHAPTER 13 | COPYRIGHT AND TAXATION | 345
Tax Savings From Deductions
Only part of any deduction will end up as an
Texas, Washington, and Wyoming don’t have
income tax savings—for example, a $5,000
state income taxes.)
tax deduction will not result in a $5,000
If you earn income from your business,
saving. To determine how much income
you can also deduct most of your expenses
tax a deduction will save you, you need
for self-employment tax purposes. The self-
to know your marginal tax bracket. This
employment tax rate is about 15.3% on net
is the tax bracket in which the last dol ar
self-employment income up to the Social
you earn fal s and it’s the rate at which any
Security tax cap ($127,200 in 2017).
additional income you earn would be taxed.
Adding all this together, you’ll see the true
To determine how much tax a deduction
value of a business tax deduction. For example,
will save you, multiply the amount of the
if you’re in the 25% federal income tax bracket,
deduction by your top tax bracket. For
your effective self-employment rate is about
example, if your top tax bracket is 28%, you
13.4% because you deduct half of these taxes
will save $28 in income taxes for every $100
from your income tax. Thus, a tax would be
you are able to claim as a deductible business worth as much as 25% + 13.4% + 6% = 44.4%.
expense (28% × $100 = $28).
So you could end up deducting about 44.4%
The income tax brackets are adjusted each
of the cost of your business expenses from
year for inflation. For the current brackets,
your state and federal taxes. If, for example,
see IRS Publication 505, Tax Withholding and
you buy a $1,000 computer for your business,
Estimated Tax.
you’ll save a whopping $444 in taxes. In effect,
In addition, you may deduct your business
the government is paying for almost half of
expenses from your state income tax. State
your business expenses. This is why it’s so
income tax rates vary, but they average about important to take all the business deductions 6%. (Alaska, Florida, Nevada, South Dakota,
to which you’re entitled.
Writing as a hobby
the income they earn from it. If you have
The worst of all possible tax worlds is
no income from the hobby, you get no
for your writing activities to be deemed
deduction. And you can’t carry over the
a hobby by the IRS. A hobby is not a
deductions to use them in future years when
business, and hobbyists may not take all
you earn income—you lose them forever.
the tax deductions to which businesspeople
Since many writers earn little or no income
are entitled. Instead, hobbyists may only
from writing, those that are deemed to be
deduct their expenses from the hobby from
hobbyists are unable to get any tax benefits
from their writing expenses.
346 | THE COPYRIGHT HANDBOOK
EXAMPLE: Assume that Charles’s writing
Schedule A (assuming his total itemized
activities were deemed a hobby by the IRS.
deductions exceed the standard deduction).
His $10,000 in annual expenses would only
You don’t need to understand all this in
be deductible from any income he earned
great detail. Just be aware that a finding by
from his hobby. Since he earned no money
from writing during the year, he can’t
the IRS that your writing activities are a
deduct any of these expenses.
hobby will be a tax disaster. The only good
thing about being a hobbyist is that you
Moreover, things aren’t all that great
don’t have to pay self-employment taxes on
even if you have income from your hobby.
hobby income. Writers who are in business
Your hobby expenses are deductible only
do have to pay such taxes.
as a Miscellaneous Itemized Deduction on
For tax purposes, a hobby is any activity
the IRS Schedule A that you file with your
you engage in primarily for a reason other
Form 1040. This means you can deduct
than to earn a profit—for example, to have
your hobby expenses only if you itemize
fun, pass the time, get famous, please your
your deductions instead of taking the
spouse (or avoid your spouse), or any other
standard deduction, which requires that
reason. Or, to put it another way, if your
your total itemized deductions be greater
primary motive for writing is to earn a
than the standard deduction ($6,350 for
profit, it is not a hobby. How do you show
single people in 2017). If you do itemize,
the IRS that your motive for writing is
your hobby expenses will be reduced so that to earn a profit? You must actually earn a
they are no more than your hobby income
profit, or at least act as if you want to earn
and then further reduced by an amount
profits. This is explained in detail below.
equal to 2% of your adjusted gross income.
If you want writing to be a hobby, not
EXAMPLE: Assume that Charles’s writing
a business, that’s perfectly fine. There’s no
was a hobby for tax purposes and he
law that says a writer has to be in business.
earned $5,000 in income from it this year,
Writing is a wonderful hobby. However,
along with his $10,000 in expenses. He
you should still keep track of your writing
could deduct $5,000 of these expenses
expenses; hobbyists may deduct from their
as an itemized deduction—the amount
hobby income the expenses that business-
equal to his writing income. How ever, this
people are allowed to deduct from all their
$5,000 deduction would be reduced by an
income as described below (subject to an
amount equal to 2% of Charles’s adjusted
exception for the home office deduction).
gross income for the year. If Charles’s AGI
Then, if you do happen to earn income
was $100,000, there would be a $2,000
from your writing, you can deduct your
reduction. So Charles could deduct only
expenses from it. This way, you can at least
$3,000 of his writing expenses on his
avoid paying tax on all or most of this
hobby income.
CHAPTER 13 | COPYRIGHT AND TAXATION | 347
Net Operating Losses
Sometimes a writer’s losses are so great that
back the loss two years—that is, to 2015.
they will exceed his or her total income for
He deducts the NOL first against his
the year. For example, assume that Charles
taxa
ble income for 2015. Then, if any of
earned only $15,000 in total income, while
the NOL is unused (that is, some of it
incurring $20,000 in currently deductible
is left after reducing his tax for 2015 to
writing expenses for the year. He would have
zero), he then deducts it against his 2016
a net loss for the year of $5,000 ($15,000 –
income. The amount of his tax savings
$20,000 = –$5,000). Such a loss is called a net
is refunded to him by the IRS. If some of
operating loss, or NOL for short.
the NOL is still left over, he can use it to
Although it may not be pleasant to lose
reduce his taxes for the next 20 years until
money over an entire year, having an NOL does
it’s all used up.
result in important tax benefits—indeed, it’s
To obtain a refund due to an NOL, you must
a little like having money in the bank, because
file either IRS Form 1045 or 1045X. You can
it can result in a quick tax refund. You can
get your refund faster by using Form 1045—
deduct the amount of an NOL against your
usual y you’ll get it within 90 days. However,
income for previous years and thereby reduce
you must file Form 1045 within one year of the
the tax you needed to pay for those years. This
end of your NOL year.
is called “carrying a loss back.”
The calculations involved in determining how
Ordinarily, you may elect to carry back the
much you can deduct from prior years’ income
loss for two years before the NOL year (the
can be complicated. Tax preparation programs
year you incurred the loss). The loss is used
like TurboTax aren’t designed to handle NOLs,
to offset the taxable income for the earliest
so it’s wise to let a tax pro help you determine
year first, and then used for the next year(s).
your NOL.
If any of the loss is left over, it may be carried
For more information on net operating losses,
forward up to 20 years—that is, used to
refer to IRS Publication 536, Net Operating Losses
reduce your taxable income in future years.
(NOLs) for Individuals, Estates, and Trusts. You
EXAMPLE: Assume that Charles had a
can obtain this and all other IRS publications
$5,000 NOL in 2017. He elects to carry
from the IRS Internet site at www.irs.gov.
348 | THE COPYRIGHT HANDBOOK
Writing as a business
The Copyright Handbook Page 60