Royalty Expenses

[thecrafted]

I have an LLC with my spouse and we pay royalties to artists that license out their work for us to re-sell. Not all of our artists are from the United States. I understand for the United States royalties of $10 or more require us to create a 1099 for the artists. My question is for the international artists is there a form we need to furnish? My reason for asking is I want to deduct the royalty expenses but I'm not sure if there is a form that needs to be filed in order to do so.

[ThomasM125]

You would furnish the same form to your artists that work out of country if you have a federal ID number that would allow you to do so. Otherwise, you don't need to furnish a form to them. Even if you don't furnish the reporting form, you can deduct the payments on your tax return.

[thecrafted]

Would you happen to know what form that would be or is it different depending the country they are in?

[ColeenD3]

The form you would issue is the same 1099-Misc. There is no specific form that you would issue an international artist.

[thecrafted]

They are not in the U.S. From my understanding 1099's are only for U.S. contractors not foreign. That's why I was wondering if there are any other forms. Probably would do good for me to check each of their country's tax forms.

[thecrafted · Accepted solution]

In case any one else runs in to a similar question. I went through a bunch of different IRS docs explaining what needs to be done. There is a Publication 515 which details how much taxes are to be withheld depending on the type of income paid to foreign individuals or entities. Then I found each treaty from the countries we have artists in who we pay royalties to for their work. The treaties typically state withholding is 0% but some only change the default withholding for royalty income from 30% to something less. Finally, there are forms 1042 and 1042-S. The form 1042 helps you fill out 1042-S which is the one you would file and the one you would give a copy to to all foreign individuals even if no taxes were withheld. Hopefully this helps any one else in the future.