Royaltes

[Earl]

Have university professor who yearly receives royalties from other universities. He
apparently has written some papers of books in the past that are of interest to
these other universities. Amounts are small and from more than one source. Usually
in the 300 to 500 range.

Hate to classify them as Schedule C income instead of Schedule E.

What is the best and correct to record them on the return?

[Koss]

Royalties

I would report it on Schedule E.

Unless royalties are a substantial portion of the guy's income, in which case it might be self-employment income.

It's a facts-and-circumstances thing. Most "professors" get paid a salary for teaching and research. Yes, they are expected to publish their research, but in most cases, they get little or no compensation for the publications. Their work takes place in the classroom and in the laboratory. The writing and publication are, in a sense, incidental.

In contrast, some professors get paid rather handsomely for writing textbooks. That might start to look more like self-employment. They actually have a contract with the publisher.

BMK

[DMICPA]

it is SE Income

I have a retired person who wrote a book and is receiving "royalties" I had done some research on this and the operations go on Schedule C and are self employment tax.

This is a bit different than oil royalties where there is no actual services involved. If there were services and work, this too would be subject to SE tax.

[Kram BergGold]

My Answer

There used to be a College Professors Tax Book. It said if the professor's book writing is very limited you put it on E. By putting it on E you can only deduct expenses that you incured writing the book in past years amortized over the projected life of income from the book.
So book written between 2010 and 2012 with $5,000 of expense. In 2013 royalties start. You project how large the royalty stream will be and ratably deduct the $5,000 over the stream.
f the person writes books on a regualr basis then treat him as a writer on Schedule C.

[Burke]

I would report it on Schedule E.
Unless royalties are a substantial portion of the guy's income, in which case it might be self-employment income.
It's a facts-and-circumstances thing. BMK

Why would the fact that a substantial portion of the guy's income attributable to royalties be a deciding factor? Royalties are usually a payment from a publisher or an entity which allocates a percentage amount (particularly allocated to sales) of either a published work or an invention of some sort. Wouldn't that determine what type of income it is? That is different from an advance, say, for writing the book, or the purchase of a patent.

[Gary2]

The substantial income factor is one of the hobby vs business questions, which is really the underlying issue. The hobby issue doesn't go away just because some or all of the income is in the form of royalties instead of direct sales.

Otherwise, clever science fiction fans would be all be writing "John Doe's Guide to Science Fiction Conventions", licensing it to the convention organizers to print and sell for a nickel royalty on every 100 copies, which they graciously donate back to the non-profit conventions, and then claiming all their attendance at conventions across the country or world as a business expense to promote their booklet.

[Koss]

Royalty Income

Interesting debate. As Gary2 has pointed out, my reasoning is analogous to the hobby vs. business issue.

The IRS instructions for the recipient of Form 1099-MISC explicitly advise the taxpayer to "report royalties from oil, gas, or mineral properties, copyrights, and patents on Schedule E."

That doesn't prove that the income isn't subject to self-employment tax. I stand by my original answer. If the guy is a professional writer, and he makes a living from it, then it belongs on Schedule C, notwithstanding the IRS instructions. On the other hand, if I published a short story eight years ago, and never published anything before or since, and I occasionally get a royalty check from it, then I don't think that's self-employment income. And there are many other fact patterns in between these two examples.

The instructions on the back of Form 1099-MISC provide some guidance, but they don't really answer the original question. It is not the reporting document that determines the tax treatment of an item; rather, it is the nature and character of the income or payment that determines how it should be reported.

That being said, the manner in which the payer chooses to report income may, in many cases, create a rebuttable presumption that the income is of a certain type. See, for example, my comments in another discussion, where a client was asserting that income reported on Form W-2 was actually self-employment income:

http://forum.thetaxbook.com/showthread.php?23401

BMK

[Burke]

I actually have a professional who also writes books that directly relate to his self-employment income, and the sales income goes on his Sche C. I also have another client, who is an independent contractor in sales, and who collaborated with a firm to create a certain product. That vendor is paying him royalties on sales of that product. So we have been reporting that income as royalties, and sales income on Schedule C. Might be prudent to take a closer look at overall figures. TP thinks the company may be involved in an audit right now, so it will be interesting to see the results. Even though it may not make any material difference in the company's deductions, it might affect my client in a substantial manner.