Author Royalties

[terran]

My wife wrote a book in a previous tax year, which is published by a trade association in her field and received a 1099-MISC for a bit under $600 in royalties. Her primary source of income is a job in the same field as the topic of the book, but writing is not her primary profession. This isn't the case, but say she was a tax accountant who wrote a book for other accountants about filing client taxes and it was published by an accounting trade association. How should we claim that income -- Schedule C or Schedule E?

If it matters, she is currently writing another book for the same publisher, but will not be paid anything for this book until sales are made. If this does matter, do things change if she doesn't continue to write in a future year, but does continue to receive royalties?

[SeattleCPA]

Schedule C I think...

[terran]

Thanks SeattleCPA! That seems like the safe way to go at any rate.

[bortman]

Our situation is similar to .. my wife receives royalties.

We've used TaxAct for years. We enter her royalty earnings as "gross receipts" and the software puts it all in a Schedule C form. I never questioned it until I saw your question, so I did some sleuthing ...

https://www.taxact.com/support/21549/2016/royalties-general-information

Royalties. Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income.

In most cases, you report royalties on Schedule E (Form 1040), Supplemental Income and Loss. However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ (Form 1040).

[terran]

Our situation is similar to .. my wife receives royalties.

We've used TaxAct for years. We enter her royalty earnings as "gross receipts" and the software puts it all in a Schedule C form. I never questioned it until I saw your question, so I did some sleuthing ...

https://www.taxact.com/support/21549/2016/royalties-general-information

Royalties. Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income.

In most cases, you report royalties on Schedule E (Form 1040), Supplemental Income and Loss. However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ (Form 1040).

Yeah, I think claiming it as self employment income is the safe way to go. The big question comes if/when she stops writing. If she's still receiving royalties but doesn't write for pay any longer, is she still a self employed writer?

[NoStacheOhio]

Our situation is similar to .. my wife receives royalties.

We've used TaxAct for years. We enter her royalty earnings as "gross receipts" and the software puts it all in a Schedule C form. I never questioned it until I saw your question, so I did some sleuthing ...

https://www.taxact.com/support/21549/2016/royalties-general-information

Royalties. Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income.

In most cases, you report royalties on Schedule E (Form 1040), Supplemental Income and Loss. However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ (Form 1040).

Yeah, I think claiming it as self employment income is the safe way to go. The big question comes if/when she stops writing. If she's still receiving royalties but doesn't write for pay any longer, is she still a self employed writer?

I've been filing schedule c for years, but have always filed royalties on schedule e, even if they're in the same field as my schedule c income.

I think the difference is that royalties aren't subject to self-employment tax (FICA).

[bortman]

found this ... hmmm ...

https://www.thetaxadviser.com/issues/2013/dec/kelley-dec2013.html

The IRS has ruled that an individual who writes only one book as a sideline and never revises it is not regularly engaged in an occupation or profession, and the book royalties are not considered earnings from self-employment. 5 However, preparing new editions of the book and writing other books and materials reflect the conduct of a trade or business. Thus, a full-time professor who co-authors a textbook and does not engage in any other commercial authorship work while writing the textbook and has no obligation to work on future editions is not engaged in a trade or business. 6 Even though an individual is retired and not currently involved in his or her creative pursuit of income, any royalties received are business income if the individual was engaged in the business at the time the material generating the royalties was produced. 7 In summary, royalty income should be classified as business income for individuals who were in the business at the time the intellectual property was created.

[SeattleCPA]

Our situation is similar to .. my wife receives royalties.

We've used TaxAct for years. We enter her royalty earnings as "gross receipts" and the software puts it all in a Schedule C form. I never questioned it until I saw your question, so I did some sleuthing ...

https://www.taxact.com/support/21549/2016/royalties-general-information

Royalties. Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income.

In most cases, you report royalties on Schedule E (Form 1040), Supplemental Income and Loss. However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ (Form 1040).

Yeah, I think claiming it as self employment income is the safe way to go. The big question comes if/when she stops writing. If she's still receiving royalties but doesn't write for pay any longer, is she still a self employed writer?

I've been filing schedule c for years, but have always filed royalties on schedule e, even if they're in the same field as my schedule c income.

I think the difference is that royalties aren't subject to self-employment tax (FICA).

I think the above treatment is wrong unless you only ever wrote the one book... or the royalties come from a copyright you inherited.

[SeattleCPA]

found this ... hmmm ...

https://www.thetaxadviser.com/issues/2013/dec/kelley-dec2013.html

The IRS has ruled that an individual who writes only one book as a sideline and never revises it is not regularly engaged in an occupation or profession, and the book royalties are not considered earnings from self-employment. 5 However, preparing new editions of the book and writing other books and materials reflect the conduct of a trade or business. Thus, a full-time professor who co-authors a textbook and does not engage in any other commercial authorship work while writing the textbook and has no obligation to work on future editions is not engaged in a trade or business. 6 Even though an individual is retired and not currently involved in his or her creative pursuit of income, any royalties received are business income if the individual was engaged in the business at the time the material generating the royalties was produced. 7 In summary, royalty income should be classified as business income for individuals who were in the business at the time the intellectual property was created.

The Tax Advisor is the basically monthly magazine published by the tax section of the American Institute of CPAs. The tax section of the AICPA is the subgroup of the CPA profession's most tax-centric CPAs. Mention this so people can gauge the credibility of the source... (I would call it extremely high.)

[NoStacheOhio]

Our situation is similar to .. my wife receives royalties.

We've used TaxAct for years. We enter her royalty earnings as "gross receipts" and the software puts it all in a Schedule C form. I never questioned it until I saw your question, so I did some sleuthing ...

https://www.taxact.com/support/21549/2016/royalties-general-information

Royalties. Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income.

In most cases, you report royalties on Schedule E (Form 1040), Supplemental Income and Loss. However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ (Form 1040).

Yeah, I think claiming it as self employment income is the safe way to go. The big question comes if/when she stops writing. If she's still receiving royalties but doesn't write for pay any longer, is she still a self employed writer?

I've been filing schedule c for years, but have always filed royalties on schedule e, even if they're in the same field as my schedule c income.

I think the difference is that royalties aren't subject to self-employment tax (FICA).

I think the above treatment is wrong unless you only ever wrote the one book... or the royalties come from a copyright you inherited.

Yeah, one book, never revised. But also stock photo royalties. Of course now I'm questioning if the photo sales went on schedule e, I know I filed both c and e. Full disclosure: I use a tax accountant.

[SeattleCPA]

Our situation is similar to .. my wife receives royalties.

We've used TaxAct for years. We enter her royalty earnings as "gross receipts" and the software puts it all in a Schedule C form. I never questioned it until I saw your question, so I did some sleuthing ...

https://www.taxact.com/support/21549/2016/royalties-general-information

Royalties. Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income.

In most cases, you report royalties on Schedule E (Form 1040), Supplemental Income and Loss. However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ (Form 1040).

Yeah, I think claiming it as self employment income is the safe way to go. The big question comes if/when she stops writing. If she's still receiving royalties but doesn't write for pay any longer, is she still a self employed writer?

I've been filing schedule c for years, but have always filed royalties on schedule e, even if they're in the same field as my schedule c income.

I think the difference is that royalties aren't subject to self-employment tax (FICA).

I think the above treatment is wrong unless you only ever wrote the one book... or the royalties come from a copyright you inherited.

Yeah, one book, never revised. But also stock photo royalties. Of course now I'm questioning if the photo sales went on schedule e, I know I filed both c and e. Full disclosure: I use a tax accountant.

For what it's worth... back when every bookstore in the developed world as at least one aisle of computer how to books, a big author and publisher convention took place in San Diego every year: The Waterside Conference.

I remember one year sitting at a table with maybe another dozen other authors and hearing that more than one was putting her or his royalties on Schedule E. This was wrong accounting because they were avoiding SE taxes on SE earnings. (And unnecessary because they could have just used an S corporation to get same benefit.) But people got away with this innocent error.

In your case, sounds like your book maybe isn't SE earnings. But maybe the stock photos are...