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New Member

How do I document book royalties?

I published a book with a publishing company.  The "Home & Business" section doesn't help address my questions.  I am not a business owner.  I simply receive periodic book royalties.  How do I report this income?
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Level 9

How do I document book royalties?

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 3 of 5 years. So the intent to make a profit and earn a living 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).  your royalty payments will be entered in the Rental Properties and Royalties section.  There will be a few initial questions related to rental properties, but then you will land on a page asking, "Is this a rental property or royalty?"
However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventorartist, 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 Income and click Start to to right of Miscellaneous Income, 1099-A, 1099-C
  • Click Start to 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 (new tax law 2018 no longer allowed). 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 expenses on 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.

Costs to Create Intellectual Property

Ordinary and necessary business expenses of authors, composers, musicians, and other creators of intellectual property are deductible under Sec. 162. Additionally, costs incurred by writers (including musical composers), photographers, and artists in creating writing (including musical compositions), photographs, pictures, paintings, sculpture, etc., are exempt from the uniform capitalization rules that govern the treatment of costs incurred in the production of property for resale. On the other hand, patent creation costs must be capitalized under Sec. 263 or in certain cases may be deductible as research expenditures under Sec. 174. 

Individuals who have not yet generated income from their creative activities should make sure that their business deductions are not limited by the hobby loss rules in Sec. 183. Generally, an activity is presumed to be a hobby if a profit is not earned in at least three tax years of a consecutive five-year period. However, a taxpayer can overcome this presumption if she or he can show the activity was operated with the intent to make a profit. Fortunately, the courts recognize that economic success in the creative arts frequently takes longer to achieve and thus focus on the manner in which the taxpayer pursues the activity to determine profit motive. 

Regs. Sec. 1.183-2(b) lists factors to be considered to determine whether the taxpayer is seeking to make a profit. A detailed explanation of these factors and the case law is beyond the scope of this article. The reader should consult IRS Publication 535, Business Expenses, and Audit Technique Guide IRC § 183 Activities Not Engaged in for Profit for additional guidance. Historically, the IRS has aggressively litigated hobby activity cases. However, taxpayers in the creative fields who have shown they operated the activity in a businesslike manner (maintained business records and appropriate documentation) and had relevant expertise have been able to prove profit motive.

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6 Replies
Highlighted
Level 9

How do I document book royalties?

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 3 of 5 years. So the intent to make a profit and earn a living 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).  your royalty payments will be entered in the Rental Properties and Royalties section.  There will be a few initial questions related to rental properties, but then you will land on a page asking, "Is this a rental property or royalty?"
However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventorartist, 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 Income and click Start to to right of Miscellaneous Income, 1099-A, 1099-C
  • Click Start to 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 (new tax law 2018 no longer allowed). 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 expenses on 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.

Costs to Create Intellectual Property

Ordinary and necessary business expenses of authors, composers, musicians, and other creators of intellectual property are deductible under Sec. 162. Additionally, costs incurred by writers (including musical composers), photographers, and artists in creating writing (including musical compositions), photographs, pictures, paintings, sculpture, etc., are exempt from the uniform capitalization rules that govern the treatment of costs incurred in the production of property for resale. On the other hand, patent creation costs must be capitalized under Sec. 263 or in certain cases may be deductible as research expenditures under Sec. 174. 

Individuals who have not yet generated income from their creative activities should make sure that their business deductions are not limited by the hobby loss rules in Sec. 183. Generally, an activity is presumed to be a hobby if a profit is not earned in at least three tax years of a consecutive five-year period. However, a taxpayer can overcome this presumption if she or he can show the activity was operated with the intent to make a profit. Fortunately, the courts recognize that economic success in the creative arts frequently takes longer to achieve and thus focus on the manner in which the taxpayer pursues the activity to determine profit motive. 

Regs. Sec. 1.183-2(b) lists factors to be considered to determine whether the taxpayer is seeking to make a profit. A detailed explanation of these factors and the case law is beyond the scope of this article. The reader should consult IRS Publication 535, Business Expenses, and Audit Technique Guide IRC § 183 Activities Not Engaged in for Profit for additional guidance. Historically, the IRS has aggressively litigated hobby activity cases. However, taxpayers in the creative fields who have shown they operated the activity in a businesslike manner (maintained business records and appropriate documentation) and had relevant expertise have been able to prove profit motive.

View solution in original post

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Employee Tax Expert

How do I document book royalties?

The Business Income and Expenses section of Turbo Tax would be used if you are a writer, and are in the business of writing books.  You would enter your freelance writing income, and write off any related business expenses.

If you are not in the business of writing books (which is what it sounds like), your royalty payments will be entered in the Rental Properties and Royalties section.  There will be a few initial questions related to rental properties, but then you will land on a page asking, "Is this a rental property or royalty?"  (See attached screenshot.)

From there, you will be able to enter your royalty income, and any expenses related to the royalty.  Many of the questions will be worded in a way that will lead you to believe you are entering a rental property, but continue on and answer the questions as they relate to your royalty.  In the end, your royalty income will be properly reported on a Schedule E.


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New Member

How do I document book royalties?

It appears that the only way to file this type of income is with the "Home and Business" version of Turbo Tax.  If there is any way to file royalties for a book in the "Deluxe" version for those who are not in the "business of writing books", please advise.  Thank you for any support you can provide, Sincerely, A.
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Employee Tax Expert

How do I document book royalties?

The download version of Deluxe includes the Schedule E, and will handle that situation.  The download version includes federal and one state, plus free e-filing of up to five federal returns. There is a fee to e-file the state return, but no fee if you print and mail it.  You can look at the specifics here:  <a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/personal-taxes/cd-download/deluxe.jsp">https://turbotax.intuit.com/perso...>

If you prefer to use the online version, you will need Home and Business.
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New Member

How do I document book royalties?

Thank you so much for this information!  I will definitely use the download version then!
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New Member

How do I document book royalties?

I upgraded to Home & Business because I wasn't able to file royalties with the Deluxe online version.  But now that I know I can do this with the Deluxe download version, how do I downgrade to the Deluxe version?
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