Did you receive a 1099? Factors affecting the federal income tax treatment of income related to intellectual property include whether to classify a creative activity as a trade or business, the timing and characterization of income received, and who owns the property. In general, copyrights and patents generate royalty income reported on Schedule E, Supplemental Income and Loss, unless it is characterized as business income reported on Schedule C, Profit or Loss From Business (Sole Proprietorship).
However, who owns the intellectual property, i.e., the creator or the party who requested its development, also determines the type of income reported. The proper classification of royalties also affects the recipient’s tax liability in other ways, including self-employment tax, investment interest deduction limitations, and the new 3.8% net investment income tax on unearned income.
See Costs to Create Intellectual Property for more information. @Taxgeek
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