By Jan Owens

Your book is in print and you are selling copies to waiting readers.

Are book sales considered a business or a hobby? The IRS wants to know.

Are you promoting and selling your book with the expectation of making a profit? This is the main distinction between a business and a hobby.

Do not be concerned if your book selling venture is showing a loss at the start-up phase. It is normal for a new business to have a loss for a year or two in the beginning. But if you continue to report losses year after the year the IRS will question your status of being a business.

A guideline the IRS uses is: Did your business make a profit in three of the last five tax years?

Here are some ways you can show you are serious about conducting a business:

• Set up a separate bank account to keep track of your income and expenses relating to your book sales
• Keep accurate accounting records
• Obtain a business license and permit
• Purchase business cards
• Advertise in the newspaper, magazines and other publications
• Market your book by mailing postcards or flyers
• Advertise your book through radio or television interviews

What is the difference between reporting to the IRS that you have a business or you have a hobby?

• If you are conducting a business you may deduct any and all of your business-related expenses.
• If selling your books is a hobby, your deductions for expenses will be limited but you still must report your income. You can only deduct up to the amount of profit that you make. In other words, if you sell $500 worth of books your deductions can not exceed $500.

For additional information:

• Refer to IRS Publication 535, Business Expenses
• Refer to IRS Summertime Tax Tip 2008-12:  Business or Hobby
• Contact a Certified Public Accountant in your area