Author Topic: Taxes: Royalty income option: Use as business or extra income?  (Read 1242 times)

meteor

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Taxes: Royalty income option: Use as business or extra income?
« on: February 02, 2014, 09:57:38 AM »
I have just become FI at 50 years old.

I now have the option of quitting my business (which is income from writing and licensing).  If I do quit my business, royalty income becomes regular income on a different tax form (schedule E). It varies between $10,000-$20,000 a year.  If I do keep my business, it is business income (Schedule C). 

Which should I do?  As of this point, these are the only pros/cons I'm aware of:

Pro:I won't have to pay double social security (self employment tax)
Pros: I won't have to track business expenses
Pros: I won't have to generate new art/writing.
Con: I won't be able to write off business expenses.
Con:I won't be able to deduct my health insurance as a business expense.
Con: I won't be able to contribute to my sep (but perhaps IRA?)

(Extra Question: Do I still have to pay social security if I only live on investments?)

Other info: My income from investments is about $40,000 a year + royalty income.
Right now, between self employment tax, federal tax, california state tax I pay almost 50% taxes (not to mention sales tax and property tax).



« Last Edit: February 02, 2014, 10:10:06 AM by meteor »

Rural

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Re: Taxes: Royalty income option: Use as business or extra income?
« Reply #1 on: February 02, 2014, 10:02:11 AM »
Pretty sure there's a "lag time" in there where you'll have to claim it as business because you materially participated last year. Do your research on that on the IRS website.