Can I take business expenses in 2016 schedule C, Musician, if my only income in the business this year was from royalties from music performances from previous tax years?

[uspopjw165]

My son, who is a musician, is preparing his tax return. He is currently employed as a W-2 employee for a music promotion and booking company.  In 2016 he received several 1099-Misc statements from music Royalties (box 2 on the 1099) from music he co-wrote while in a rock band in previous tax years.  He is no longer in a band, but continues to receive royalties from past work.  He continued to write and record music in 2016, but he has not sold any of these recordings and he has not received any other income from this business.

My question: Can he claim business expenses, such as a new recording computer and recording software purchased in 2016, against the royalties he received? All equipment is used solely for business purposes.

[RichardG · Accepted solution]

Yes, his royalty income for past songs supports his claim that he is engaged in a business, even though he has not sold any of his music during the current year.  The expenses you mention are deductible against the royalty income.  Technically, these are capital assets for depreciation, but he can take a Section 179 deduction for these items up to the amount of income earned.  Any unused deduction will carryover to 2017.

[uspopjw165]

As he has other sources of income, turbo tax appears to be deducting his business expenses from his overall tax debt, beyond his royalty earnings.  He has other 1099-misc income unrelated to his music.

[RichardG]

Make sure his royalty income is not commingled with his other 1099-MISC income.  It may be easier to delete the royalty forms and expenses and start fresh under the Business Income heading.