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.
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.