9.12 Production Costs of Books and Creative Properties

Freelance authors, artists, and photographers may deduct their costs of producing original works in the years that the expenses are paid or incurred. If you qualify, the uniform capitalization rules that generally apply to property that you produce for resale (40.3) do not apply to the expenses.

Caution

Hobby Loss Restrictions

Authors and artists with expenses exceeding income may be barred by the IRS from claiming loss deductions (40.10).

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You qualify for current expense deductions if you are self-employed and you personally create literary manuscripts, musical or dance scores, paintings, pictures, sculptures, drawings, cartoons, graphic designs, original print editions, photographs, or photographic negatives or transparencies. However, the exception to the uniform capitalization rules does not apply to, and thus current deductions are not allowed for, expenses relating to motion picture films, videotapes, printing, photographic plates, or similar items.

If you conduct business as an owner-employee of a personal service corporation and you are a qualifying author, artist, or photographer, the corporation may claim current deductions related to your expenses in producing books or other eligible creative works. Substantially all of the corporation’s stock must be owned by you and your relatives.