I had still been attempting to write until this year but I haven't published anything. I still receive meager royalties from a book written 15 years ago. Do I report my royalties on schedule E since I no longer write?
I have found conflicting answers on Turbo Tax support. I have attached the one that seems appropriate for my situation But I have also read posts that state that all royalties for having written a book in the past should be reported on schedule C.
Thank you in advance for your help!
Yes. If the Income from 1099-MISC is reflected in Box 2 it will be reported on Schedule E with your Tax Return. Per the IRS: Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income.
Please follow the directions below to enter your royalty income:
- Type in royalty income in the search box (upper right side of the screen)
- Click the jump to royalty income link.
- On the next screen titled "Income from Rentals or Royalty Property You Own", answer yes.
- Answer the interview questions to input your royalty income.
- On the page titled Is "This a Rental Property or Royalty" you will enter your own address for the property address.
The IRS makes a critical distinction between authors and hobbyists. Authors are trying to make a living selling their writing. You are deemed to be a professional if you are trying to make a profit in the last 2 of 5 years. So the intent to make a profit is important. In your scenario since you had never published, you would be considered a hobby income.
If you are in the business of being an author:
Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income.
In most cases, you 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 or Schedule C-EZ (Form 1040). This can be done using TT Self Employed.
If it is a hobby where you don't intend to make a living then you report the income as hobby income.
- Choose Wages and Income
- Scroll down to Less Common Incomeand click Start to to right of Miscellaneous Income, 1099-A, 1099-C
- Click Startto right of Hobby income and expenses
- The IRS doesn't allow you to deduct hobby expenses directly from hobby income. Instead, you can deduct expenses as an itemized deduction subject to 2% of your adjusted gross income. Also, the amount that you claim as an expense cannot be greater than your income from the hobby. In other words, your hobby cannot generate a loss.
- Taxpayers can choose to itemize expenseson their tax returns or take the standard allowable deduction. Hobby expenses can only be deducted if you itemize your deductions.
If you don't have any other itemized deductions, TurboTax will deduct the greater of the standard deduction or itemized deductions. TurboTax will choose the one that lowers your overall tax liability.
- If you are in the business, use TT Self Employed and enter as SE income on schedule C or C-EZ by following the interview and reporting as a business.