Book Publishing costs

[S T]

I have a taxpayer that wrote a book and incurred costs "Publish on Demand" sold through Amazon.
2015 Costs are $ 3,500 - no inventory - Amazon issued 1099 MISC forms for books sold - under Royalties Box 3 - Amazon provided a complete Item listing of sold books as well as digital book download.

Question, what tax treatment for the $ 3,500 - amortize over maybe a 3 year period or 5 year period.

Anyone have some insight on this

Thanks

Sandy

[ATSMAN]

I have a taxpayer that wrote a book and incurred costs "Publish on Demand" sold through Amazon.
2015 Costs are $ 3,500 - no inventory - Amazon issued 1099 MISC forms for books sold - under Royalties Box 3 - Amazon provided a complete Item listing of sold books as well as digital book download.

Question, what tax treatment for the $ 3,500 - amortize over maybe a 3 year period or 5 year period.

Anyone have some insight on this

Thanks

Sandy

Assuming this tax payer is treating this as a "business", they can deduct the $3,500 as start up cost deduction. The limit is $5000. Any excess would have to be amortized over 15 years.

I find a lot of these 1 book authors to be really a hobby. A client of mine once wrote a cook book and published via Amazon (I think) and if I recall correctly got less than $1000 in royalties. After much discussion it was treated as a hobby and expenses were deducted on Sch A instead of Sch C.

[Burke]

I have one of these, and the books all relate to his Sche C income. So I report the sales there and deduct the publishing costs pro-rated on the number of books sold. Most of these publishing costs are paid up front and "X" number of books published and provided to the writer, so I can allocate the cost of each book. He self-sells his books at seminars, on-line etc. So they are considered inventory. Some of them are never sold and given away to clients. Authors rarely ever write just one book.

[Kram BergGold]

If I understand?

I think you are saying he spent $3500 on the books they published and sold in 2015. If so the entire $3500 is deductible. If some of the books costing $3500 were purchased by the author to give away, then some might be advertising or business gifts and some might be personal non deductible gifts.

[Roland Slugg]

OT reply

Authors rarely ever write just one book.

Well, many writers – probably the vast majority – write one book, and then quit when it doesn’t sell. Most writers who have some degree of success with their first book do write another, of course, ... and another ... and ......

There are a few remarkable exceptions, however: Margaret Mitchell’s “Gone With the Wind” was her only novel, and so was Emily Bronte’s “Wuthering Heights.” We’ll never know if Bronte would have written more, since she died soon after writing WH. “The Catcher in the Rye” was J.D. Salinger’s only published novel, although I believe he did write several short stories prior to “Catcher,” and he may have written other novels that were never published. And until very recently, Harper Lee’s only novel was “To Kill a Mockingbird.” I’m sure a Google search would unearth several more “one hit wonders.”

[Snaggletooth]

Inventory

The original post said she carried no inventory.

Maybe so, but if this is true, it is only if she had no remaining books to sell at the end of the year.

The $3500 in publishing costs are inventory, period, to be applied on a unit cost basis over the number of books published. If there were 700 books, her carrying costs for inventory would be $5 per book. If they were all sold by year-end, she has Cost of Goods Sold for $3500, and the entire amount is deductible.

This is true even if she sold them to Amazon, consideration being future royalties. If she didn't really incur the $3500 then she doesn't have inventory, and the royalties are current income.

If she published 700 books, and Amazon still has custody of 500 unsold books that they've never paid her for, she still should carry these 500 books in inventory.

[S T]

Assuming this tax payer is treating this as a "business", they can deduct the $3,500 as start up cost deduction. The limit is $5000. Any excess would have to be amortized over 15 years.

I find a lot of these 1 book authors to be really a hobby. A client of mine once wrote a cook book and published via Amazon (I think) and if I recall correctly got less than $1000 in royalties. After much discussion it was treated as a hobby and expenses were deducted on Sch A instead of Sch C.

Thanks for your response, however, does not apply - Not a new start up - TP already has an existing business and has "published on demand" through Creatspace/Amazon a book that ties in with her existing business.

So the "start up costs" and hobby rules are not going to apply for this taxpayer

Actually TP is now working on her 2nd and 3rd book to "publish on demand" connected with her business.

Thanks

Sandy

[taxea]

read the contract

[S T]

I do not disagree with any of the posts - however, the "Publish on Demand" through Create Space - Amazon seems to be different as we know authors/writers publishing, etc

I now have invoices from this taxpayer

Invoices show a contract for

Book development, ghostwriting, book cover design, basic book package 7,602 words, writing on behalf of author, customization, isbn and an additional for the Kindle publication

All in a package to submit to CreateSpace, which is a subsidiary of Amazon.Com for “books published on demand” - all submitted via PDF format, etc.

From CreateSpace

The minimum you need to publish a print book using CreateSpace is:
1. A manuscript formatted to CreateSpace specifications. (Download templates here.)
2. A book cover; again it must adhere to CS specs. (Cover specs here.)
3. Your only required cost is if you buy books for resale or personal use
4. So if you did everything yourself, including your cover design, select the free ISBN, proofed your book online and do not order expanded distribution, the final cost is…..$0. All that’s left is to put your book on sale on Amazon which is an automatic process. Click here to learn how much it will cost you to buy books for your personal use (select the Buying Copies tab).

If you review CreateSpace and Amazon online , there are no costs, NO Inventory, all printed as a customer places their order on the Amazon site.

Example customer orders the paperback book listed at $ 12.97 - TP receives $ 4.79 ( covers publishing cost per book, shipping, Amazon handles sales tax) CreateSpace prints book to ship to customer order -

Question is how to treat the costs incurred for the Professional as indicated above, that develops all of the “electronic/digital” files to submit to Create Space and place on Amazon for on demand publishing

Different concept and CreateSpace promotes the issue that there is NO Inventory.

Seems like a “one time cost” and no UNIT (per book) can be assigned - According to the contract - only “changes” would be incurred

Thoughts

Sandy

[jsamans]

It sounds like what you're dealing with here are contract services rather than printing costs.

[Burke]

I am having a hard time wrapping my head around what is actually "free" here and the "0" costs, when she has forked over $3,500. And she has supposedly written this book, but there are expenses for "book development," "ghostwriting" and "writing for the author?"