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deadcow
Returning Member

1099-MISC Patent Royalty Payment Issue - Turbo Tax reporting as a business?

Turbo Tax is treating my one time patent royalty payment as a rental property and business in Schedule E. I read you just need to enter the property type as a "royalty" and then enter your own address as the property address. However once I finished this form, I keep seeing inputs saying I have a business. How do I make sure turbo tax doesn't think I have a business? This section is so confusing.

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7 Replies
DawnC
Employee Tax Expert

1099-MISC Patent Royalty Payment Issue - Turbo Tax reporting as a business?

It goes on Schedule C (business income) or Schedule E (passive income) depending on the type of royalty.   Both are going to require a separate schedule using your own personal address.   When you enter your 1099-MISC, enter the income in Box 2 - Royalties. On the following screen, choose the source of your royalty income:

 

  • Investment income from property you own – This includes natural resources extracted from your property by a third party who leases your property, as well as royalties from intellectual property that you didn't create yourself. This gets reported on Schedule E.   
  • Royalty income from your business, including artist royalties or operating a natural resources business (Schedule C) – This includes income from natural resources that you extract from your property as well as royalty payments from intellectual property you created as an inventor, writer, artist, and so forth. This gets reported on Schedule C.

Once you've selected the proper classification, follow the onscreen instructions.

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deadcow
Returning Member

1099-MISC Patent Royalty Payment Issue - Turbo Tax reporting as a business?

Thank you for the response. I did exactly as you posted but Turbo Tax keeps implying I have a business with no expenses despite selecting Schedule E. How do I ensure that I'm not being penalized for having this "business" that doesn't exist?

 

Example: Untitled.png

DianeW777
Expert Alumni

1099-MISC Patent Royalty Payment Issue - Turbo Tax reporting as a business?

It appears you have selected that you are receiving  Royalty income from your business, including artist royalties or operating a natural resources business (Schedule C) – This includes income from natural resources that you extract from your property as well as royalty payments from intellectual property you created as an inventor, writer, artist, and so forth. This gets reported on Schedule C.

 

If it should be business income you will be taxed for social security and medicare taxes as well as  your personal income tax.  

 

If it should be a royalty and not business income you must indicate that when you enter the 1099-MISC.    You need to select Investment income from property you own – This includes natural resources extracted from your property by a third party who leases your property, as well as royalties from intellectual property that you didn't create yourself. This gets reported on Schedule E.

  • Search > type royalties > Click the Jump to... Link > Complete your royalty income section (Should be on Schedule E if you are not operating a business for this payment).

              

@deadcow

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deadcow
Returning Member

1099-MISC Patent Royalty Payment Issue - Turbo Tax reporting as a business?

I appreciate your response. These are my only options and I believe the first one is the appropriate one (which is what I originally selected). Additionally I was able to switch to forms mode and scroll to my Schedule E section and select "Royalties". But the business implications remain.
Untitled.png

PaulaM
Expert Alumni

1099-MISC Patent Royalty Payment Issue - Turbo Tax reporting as a business?

You can skip the 1099-MISC section entry (delete the form). Then enter the 1099-MISC form details directly in the Royalty Income section. 

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1099-MISC Patent Royalty Payment Issue - Turbo Tax reporting as a business?

I have the same issue and it looks like a Turbo Tax bug.  The expert does not understand the problem and/or the response is poorly worded. 

1. I do not own a company.

2.  I am the inventor.  I do not own the patent- my employer does.

3.  My employer gave me money for filing the patent application and I received a 1099-MISC

 

How do I enter this on the web based version of Turbo Tax?  

ThomasM125
Expert Alumni

1099-MISC Patent Royalty Payment Issue - Turbo Tax reporting as a business?

If the income is reported in box 2 on the Form 1099-MISC, it will be treated as either Royalty investment income or royalty business income. With either treatment, it is going to appear on a schedule E or schedule C, both of which allow you to enter expenses associated with it, so in that sense the income will be associated with a business. If you want it to be reported as "Other" income, you would have to enter the amount as a box 3 entry. From what you described, you provided services to earn the money, so it would likely be treated as a business by the IRS. 

 

 

You enter the Form 1099-MISC in the Wages and Income section of TurboTax, then Other Common Income, then Income from Form 1099-MISC.

@WingWalker 

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