I received a 1099-MISC from my employer who gives rewards for filing patents. This is a one time reward and is listed in box 2 under royalties. How do I enter the income?

[andyroo-l]

I’m given the option to enter as income from a rental property or it treats it as if it’s from a personal business.

[rjs]

I don't think this is really a royalty, and your employer should not have issued a 1099-MISC for it. It should have just been included in the wages on your W-2. But the easiest way for you to handle it is to go along with what the employer did and report it as royalty income.

TurboTax makes this more complicated than it needs to be, because it uses one set of questions for both rental and royalty income. But here's how you can enter the royalty income.

• When you enter the 1099-MISC, for the source of the income select "Investment income from property you own."
• The next screen tells you it will create a Schedule E. That's the form for reporting royalties. Click Continue.
• For the description enter "Patent." For the location enter your home street address.
• "Do you have another 1099-MISC?" Select No.
• On the 1099-MISC Summary click Done.
• Now click the Update or Revisit button for the "Rental Properties and Royalties" topic. If you don't see it, type "Royalty" (without the quotes) in the Search box, then click the link that says "Jump to Royalty."
• "Do you want to review your rental and royalty information?" Click Yes.
• "Let's See if You're a Real Estate Professional." Select "None of the above" and click Continue.
• On the Rental and Royalty Summary screen, click the Edit button for the patent.
• "Is This a Rental Property or Royalty?" Select "Royalty property or payment" (probably already selected). The description that you entered earlier will already be filled in. For Location select "United States or U.S. Possessions." Fill in your city, state, and Zip code. The description and address that you enter will go on a worksheet in TurboTax, but will not appear on your actual tax return.
• "Does All the Income . . . Belong to You?" Select Yes.
• "What Type of Royalty Income?" Select "Other Intangible (Patents, copyrights)."
• "Did You Pay Anyone $600 or More . . . ?" Select No.
• "Let Us Enter Your Royalty Info for You." Select "Enter my royalty info myself."
• "Is Your Property in Any of These Designated Areas?" Select "None of the above."
• On the Royalty Summary screen click "Done With Royalty Property" (at the bottom).
• "Any Other Situations?" Don't check any of the boxes. Just click Continue.
• "Your Profit or Loss Results So Far." Click Continue.
• "Is this Qualified Business Income?" Select No.
• "Review Royalty Income and Expenses." Look at the summary if you want to, then click Done.
• "Rental and Royalty Summary." Click Done.

[JTT_ffortier]

My problem is similar.  I received Patent awards on 1099-MISC box 2 Royalties, when the patents were approved at the US patent office.  This award is the company policy, even when you are no longer an employee.  I retired several years ago.  This is neither Employment income nor Investment Income.  It seems to be best described as income that would be reported on Schedule 1, item 8J "Activity not engaged for profit income", per this description https://www.irs.gov/faqs/interest-divid[product key removed]-of-income/1099-misc-independent-contrac.... 

Right now I am stuck between creating a Schedule C or creating a rental or royalty property.  I guess I could call the Patent Award a royalty property but it would probably want a Schedule E input when I think the Schedule 1 input would be more appropriate. 

What is the right approach to get the job done right?

I would appreciate any suggestions.

Thanks.

Jim F.

[Vanessa A]

If you are receiving royalties from the patent and received a 1099-Misc with the income in box 2, then you would report it on Schedule E as royalty income.  TurboTax will automatically generate the Schedule E when you enter the income as royalty income. 

"You generally report royalties in Part I of Schedule E (Form 1040 or Form 1040-SR), Supplemental Income and Loss.  However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C." Taxable income

[JTT_ffortier]

Thanks for the response.  As I mentioned, I am retired and no longer an employee.  This income is not patent royalties.  Just a monetary award for having the patent that was submitted several years ago approved.  I guess I can treat is as a royalty for the purposes of reporting the income.

[rjs]

@JTT_ffortier 

Since the company reported it as a royalty, you should report it as a royalty. The IRS computers will expect to find it on Schedule E. If you put it somewhere else the computers won't match it to the 1099-MISC. That will result in a notice from the IRS saying that you failed to report it, which will require correspondence between you and the IRS to straighten it out.

Your tax will be the same, whether you report it on Schedule E or Schedule 1. In fact, the Schedule E income ends up on line 5 of Schedule 1. The bottom line will be the same whether the income is on line 5 or line 8j.

"Activity not engaged in for profit income" means hobby income. The award you received is not income from a hobby.

[JTT_ffortier]

Thanks to all who replied.  It should work well.