Your franchise main office may provide guidance for you regarding reporting your Business Income and Business Expenses.
Type 'schedule c' in the Search area, then click on 'Jump to schedule c' to get to this section.
Royalty Payments could be considered 'Uncommon Income'; you can enter a description of the income item.
Franchise Note Payments could be considered 'Other Expenses', where you can type in a description of the expense item.
Click this link for general info on Reporting Business Income and Expenses.
The IRS provides extensive guidance at the Small Businesses and Self-Employed Tax Center.
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what tax form does the franchise take - sole proprietorship or single-member LLC, S corporation, C corporation.
on the appropriate form, the royalty payments would be shown as royalty expense. only the interest part of any franchise note payments are deductible. you really need to see a pro. you may be missing or misreporting substantial items. for example, the cost of the franchise is a section 197 intangible which must be amortized.
if you mess up your return the first year or don't file the proper return, these issues will never go away, at some point the IRS MIGHT pay you a visit. then you MIGHT get a substantaial tax bill.