Schedule C Royalties

[TAXBILLY]

Have a Sch C author who receives royalties from a book he wrote. He has a 1099-MISC with the amount in box 2.

Does this income go on line 1 or 6 of Sch C?

Thanx,

taxbilly

[jainen]

>>Does this income go on line 1 or 6 of Sch C?<<

If writing books was his main business, the income is shown on line 1. If it was incidental to something else (for example, conducting wedding ceremonies) or if it was a small business that you don't want to do a separate Schedule C for, then you can use line 6. If writing the book was not part of a trade or business you could put it on Form 1040 line 21 other income, but the IRS may not like that.

[kcjenkins]

I agree.

[TAXBILLY]

Client is a college professor but has written many books over the past 20 years.

taxbilly

[Lion EA]

It's been a while since I've had a author for a client, so this is just from my failing memory. If he's actively writing and researching and has been reporting on a Schedule C, then this is income on his C. If it's a random royalty that shows up just because one of his old books was just translated into Urdu or something and a few students bought it this year even though your client has long been retired from writing, then doesn't it go on Schedule E? Not at the office, but would have to look for those author/prior clients to see what I learned back then.

[TAXBILLY]

Thanx to all. Schedule C, line 1 it is!

taxbilly

[jainen]

>>a random royalty that shows up just because one of his old books was just translated into Urdu<<

It never goes on Schedule E, until he dies and his heirs get the royalties. And it doesn't matter if he is no longer in the authorship business, as long as he was in business at the time the book was produced.

An interesting question is whether any FIRST book could generate SE income, since the IRS says you aren't in business (must capitalize expenses instead of deducting them) until you are established.

[Lion EA]

Thank you for clarifying when royalties go on Schedule E. I had someone who'd inherited the rights to a song, so must be remembering that outcome. And, I had someone spending lots of money preparing to write his first book who was disappointed that I wouldn't let him deduct everything through the years while he "researched" his potential book on golf courses around the world. Of course, there was the partnership that listed R&D expenses for all their travel and greens fees and ... while they "researched" how to market their golf cart cushions. Love those people who attend seminars telling them they can write off all their personal expenses when they have a business. ("I had to buy a living room lamp to show off my clothing better to guests in case a visitor might buy something from me.")

[kcjenkins]

And don't forget the 'I can write off my TV because I show potential Amway downline folks how they can get one just like it free if they sell enough........."

[JohnH]

As well as, "I can write off my pet food, grooming, & vet bills for my pekingese because he serves as a guard dog for my inventory of (Amway, Mary Kay, Avon, Water Purifier, etc)"