Question: Can you help me figure out how to report my royalties?Do you need to pay self-employment tax for book royalties? What is the IRS code section refering to this? Do you report your royalties on Schedule E or Schedule C?

Answer: If you are a self-employed writer, then yes, you absolutely must pay self-employment tax on your earnings. Even though the reported earnings are "royalties" they are not considered passive income if the copyright is self-produced. Self-employed writers, artists, photographers, etc, should report their income on Schedule C, subject to self employment tax. You don't have to look to the Internal Revenue Code section, it's right in IRS Publication 17 (page 89)

"You generally report royalties in Part I of Schedule E (Form 1040). 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 (Form 1040)." (IRS PUBLICATION 17)

Now, if you had inherited a copyright (such as from a deceased relative) then the earnings would not be subject to self employment tax.

Hope this helps
 


Comments

Emil Posavac
03/11/2011 10:46

Nice, clear comment with an IRS link. Thank you.

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Emil Posavac
03/11/2011 11:39

Second thought...Suppose that the current edition is the last? The one that came out last year is the 8th and I am retired---no longer teach the topic. This may well be the last edition. I am doing nothing toward selling books or writing them. What now?

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Stoney Pryor
04/12/2011 20:31

I have the same issue, Emil. I did see this on another website (http://benefitslink.com/modperl/qa.cgi?db=qa_who_is_employer&id=150). It says that Revenue Ruling 68-498 says that self employment tax does not have to be paid if the writer is not "regularly engaged" in the process (ie, is not preparing new editions). It is from 2002, however, and I have not yet found it on the irs website.

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