Business Expenses

• If you're working for yourself, even part time, you can deduct business-related expenses from your business income. In addition to the cost of designing, typesetting and printing the book, you can charge advertising, shipping copies and mileage for business-related travel. If you've paid to have the book illustrated, that counts too. In addition, if you use part of your home exclusively for business, you can deduct a percentage of utilities, property taxes and other housing costs based on how much space your business takes up.
  
  

Business Losses

• If your business ends up in the red for the year, you can deduct the losses from your other income on your 1040 form. You can do this regardless of whether you itemize your taxes or not. The exception is the deduction for a home business: Instead of taking that as a loss off your other taxable income, you have to carry it over into the following year and deduct it then, if your business shows a profit that year.
  
  

Hobbies

• You can only write off a loss if your publishing is, in fact, a business. If the IRS decides that it's a hobby, you can only deduct your expenses from your self-publishing income. The IRS classifies hobby expense as a miscellaneous deduction, available only if you itemize. To claim it, you must add all your miscellaneous deductions -- listed on IRS Publication 529 -- and subtract 2 percent of your adjusted gross income, which you calculate on the first page of your 1040. Anything above 2 percent of AGI is deductible.
  
  

Business or Hobby

• If you claim self-publishing as a business, the IRS has some tests to confirm that, Kay Bell says on Bankrate.com. If you can show a profit for three out of five years, it's a business. If not, the IRS will ask how much time you put into self-publishing; whether you depend on it for income; whether you approach it in a businesslike manner; whether you work on making it more profitable; and whether the losses are the result of events beyond your control. If the answers to most of the questions are no, it may be a hobby.