Where do I report 1099-MISC box 3 amount received as a surviving beneficiary of motion picture residuals for my deceased brother that will continue indefinitely?

[milleick]

Where do I report 1099-MISC box 3 amount received as a surviving beneficiary of motion picture residuals for my deceased brother that will continue indefinitely?
Based upon research I believe it should be on schedule 1 line 8 or schedule 8 - royalties.
Prior TurboTax community said to put on schedule E under royalties - but that does not match the 1099-MISC box being 3 instead of 2 - does that matter?
The turbo tax questions for directing placement to schedule 1 line 8 or schedule E do not have this particular instance, so it puts it to schedule C which I do not think is correct as it is passive income.
The 1099-MISC form itself on box 3 indicated to place it on line 8 of schedule 1 with example language of "The amount shown may be payments received as the beneficiary of a deceased employee, prizes, awards, taxable damages, Indian gaming profits or other taxable income".

[ToddL99 · Accepted solution]

Report this as you last described - "The 1099-MISC form itself on box 3 indicated to place it on line 8 of schedule 1 with example language of "The amount shown may be payments received as the beneficiary of a deceased employee, prizes, awards, taxable damages, Indian gaming profits or other taxable income"."

It is not self-employment income (Schedule C).

It may be royalty income (Schedule E), but there is no reason for you, as the beneficiary, to get wrapped up in the TurboTax royalty income interviews. The IRS is going to tax this income the same way if you report it as "Other Common Income" (Line 8, Schedule 1).

• Type "other Income" in the search window (or in the Search Topic window for desktop versions) 

• Click on "jump to other Income" (or "other income" in the Search Topic results) 

• Enter the information from your Form 1099-MISC, and click on Continue 

• Enter a description and click on Continue 

• On the screen with "Does one of these uncommon situations apply?", indicate "None of these apply" 

• Answer "No..." to "Did the [Description] involve work that's like your main job?" 

• Answer "I got it in 2020" when asked "How often did you get income for [Description]?" 

• Answer "No, it didn't involve an intent to earn money." 

The amount will be reported on line 8 of Schedule 1 (Form 1040). 

[Jennypenny]

I have a similar situation (my husband received a 1099-MISC for royalty money from his deceased father). The steps below didn't work.  After these steps:

• Type "other Income" in the search window (or in the Search Topic window for desktop versions) 

• Click on "jump to other Income" (or "other income" in the Search Topic results) 

• Enter the information from your Form 1099-MISC, and click on Continue

The next questions are:

1. investment income from property you own (no)
2. Royalty income from your business, including artist royalties or operating a natural resources business (Schedule C)

Neither of these apply.  If I pick #2, then it prompts me to fill out as if he owns a business.

I don't see these options:

• Enter a description and click on Continue 

• On the screen with "Does one of these uncommon situations apply?", indicate "None of these apply" 

• Answer "No..." to "Did the [Description] involve work that's like your main job?" 

• Answer "I got it in 2020" when asked "How often did you get income for [Description]?" 

• Answer "No, it didn't involve an intent to earn money."

[JamesG1]

Was the income reported as in box 2 of the IRS form 1099-MISC?

If so, then enter ‘royalty income’ in Search magnifying glass in the upper right hand corner of the screen.

Click on ‘jump to royalty income’.

You are correct.  There are two options:

• 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

Investment income includes amounts received from oil, gas or mineral properties when natural resources are extracted from your property.  These royalties are based on units, such as barrels, tons, etc. and are paid to you by a person or company that leases the property from you.  You may be eligible for a depletion allowance.

Royalties from intellectual property (patents, copyrights, trademarks, etc.) are only considered investment property income if you are not in the business of creating such works.  For example, you could purchase a copyright or inherit the right to receive royalties from a literary work.  In these cases, this income would be investment income.

Does your income qualify as investment income?

Make the selection of the type of royalty income at the screen What type of royalty income?

See also this TurboTax Help.

[Edited 2/16/2023 | 9:03 am PST]

@Jennypenny 

[Jennypenny]

@JamesG1:  I guess so, because it's "royalties from intellectual property that you didn't create yourself" (ie. deceased father)

So, TT prompts me to pay $149 to file Schedule E for a 1099 with $185 of royalty income??

[DianeW777]

Yes, royalties should be reported on Schedule E under the tax rules which is why TurboTax automatically entered them appropriately. This is where the IRS will look for this income.

• How do I report royalty income?

@Jennypenny 

[leickmil]

I found that if you add the income (1099 or other) - then go to the form view for that income you can designate which form to report that income on.  In my case a 1099-MISC I am reporting as Other Income which goes to 1040- schedule 1 line 8-z automaticalluy when I clicked the X on the 1099-MISC to report as Other Income and it removed the self employment tax.

[leickmil]

[Critter-3]

Follow these directions to post 1099-Misc, box 2 income not subject to self-employment taxes.

• Down the left side of the screen, click Federal.
• In the center of the screen, click Income & expenses.
• On the screen Your income and expenses, scroll all the way down to the last section, Less Common Income.
• Click the Start or Update button for the last topic, Miscellaneous Income, 1099-A, 1099-C.
• On the next screen, Let's Work on Any Miscellaneous Income, scroll down and click the Start or Update button for the last topic, Other reportable income.
• The next screen asks, Did you receive any other taxable income. Click Yes.
• On the next screen, Other Reportable Income, enter a description and the amount. Click Continue.
• On the next screen click Done.

The income will be reported on Schedule 1 line 8Z with the description that you entered. 

[Jennypenny]

@leickmil

This is not how it looks on TT

[Jennypenny]

@Critter-3

Thank you.  This seems to work, is it OK that TT says "do NOT enter income reported on FORM 1099-MISC"?

The earnings are NOT income, but they ARE reported on a FORM 1099-MISC.

Does that make sense?  To report it in the fashion you described?

[Jennypenny]

@Critter-3 actually this does not work.  It again prompts me to choose (neither which apply):

[PatriciaV]

Yes, if you enter this under the Form 1099-MISC topic as income from royalties, you will be prompted to choose between investment and royalty income.

However, if you follow the steps provided by Critter-3 and enter this under Other Reportable Income, this will appear on Schedule 1 Line 8Z with the description you enter (ex: Inherited royalties).

Note that the IRS doesn't necessarily match up a 1099-MISC to your return. This form ensures reporting compliance by those who pay you. As long as you report your income, you have satisfied the rules.

[Critter-3 · Accepted solution]

Follow these directions to post 1099-Misc, box 3 income not subject to self-employment taxes.

• Down the left side of the screen, click Federal.
• In the center of the screen, click Income & expenses.
• On the screen Your income and expenses, scroll all the way down to the last section, Less Common Income.
• Click the Start or Update button for the last topic, Miscellaneous Income, 1099-A, 1099-C.
• On the next screen, Let's Work on Any Miscellaneous Income, scroll down and click the Start or Update button for the last topic, Other reportable income.
• The next screen asks, Did you receive any other taxable income. Click Yes.
• On the next screen, Other Taxable Income, enter a description and the amount. Click Continue.
• On the next screen click Done.

The income will be reported on Schedule 1 line 8 with the description that you entered.