any individual whose personal efforts create or may be reasonably expected to create a literary manuscript.

Schcdule C or Schcdule E? The royalties or other income received by a college professor from writing textbooks is ordinarily classified as self-employment income. If the author writes books on a regular basis or periodically revises an existing textbook. the author is considered to be in the trade or business of writing. In this situation, any income or royalties received from writing must be reported on Schedule C, and Social Securiiy tax on self-employment income must be paid.

If, however, the book is a one-time effort with no future revisions or publications planned, the author is not considered in the trade or business of writing. In this case, the royalties received from the book are not classified as self-employment income and can be recorded on Schedule E, Rents and Royalties. Contributions to self-employment retirement plans (Keoghs) may be made from royalty income reported on Schedule C but not from royalty income reported on Schedule E.

Deductibility. Any expenses incurred in the process of writing a textbook are deductible in the taxable year if they qualify as creative expenses. IRS Code 263A(h)(2) defines qualified creative expenses as:

any expense incurredin an individual's trade or business of being a writer, and are deductible to the extent that they are deductible under other provisions.

Qualified creative expenses typically include expenses incurred while researching, writing and assembling material for a book, as well as any incidental travel expenses incurred in the process.

Accrual Accounting. An exception to the general rule about deducting expenes in the taxable year arises when the author is an accrual-basis taxpayer rather than a cash-basis taxpayer. Costs incurred by an accrual basis taxpayer in the process of writing and editing the book must be capitalized and later depreciated.

Deductible expanses. This list, in part, is reproduced from an earlier issue of TAA Report:.

• Accounting and auditing expenses
• Advertising expenses
• Attorney fees and other legal expenses
• Auto expense for business purposes (mileage log requlred)
• Books required for business purposes (if the useful life Is short)
• Bookkeeping services
• Breach of contract damages
• Building expenses, used for business
• Burglary losses not covered by insurance
• Business taxes, except federal income tax
• Capital assets, losses from sale or exchange
• Casualty damages
• Contracts, payment to secure
• Contracts, amount paid to cancel to prevent loss of earnings
• Convention expenses
• Copyrights, depreciation on
• Depreciation
• Donations, if as business expenses
• Dues to societies, organizations and clubs (if for business purposes)
• Education expenses (some)
• Entertainment expenses, limited (expense account record required)
• Equipment repairs and minor replacements
• Exhibits and displays to publicize your product
• Experimental and research expenses
• Fees to agents
• Gifts to customers and employees
• Health insurance premiums (some)
• Interest on loans of all kinds forbusiness purposes
• License fees
• Lobbying costs (if legal and in connection with your business)
• Maintenance of business property
• Newspapers used for business purposes
• Office expenses
• Pension trust payments, if properly and legally drawn
• Rents paid for office, safe deposit, warehouse.and storage
• Salaries
• Subscriptions to trade, business or professional periodicals
• Telephone and telegraph
• Travel expenses (expense account required)