How do I report book royalties for tax purposes?

Question

I'm located in the US and received a 1099-Misc for approximately $125 of royalties I received from a book I wrote. I published the book through a publishing company, and I am not operating as a business. It was a one time project that I have no ongoing involvement with. How do I report this for my tax return? I was thinking Schedule C or Schedule E?

Answer 1

(Insert the usual disclaimer that I'm not any sort of tax professional; I'm just a random guy on the Internet who occasionally looks through IRS instructions for fun. Then again, what you're doing here is asking random people on the Internet for help, so here goes.)

The gigantic book of "How to File Your Income Taxes" from the IRS is called Publication 17. That's generally where I start to figure out where to report what. The section on Royalties has this to say:

Royalties from copyrights, patents, and oil, gas, and mineral properties are taxable as ordinary income.

In most cases, you report royalties in Part I of Schedule E (Form 1040). 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 or Schedule C-EZ (Form 1040).

It sounds like you are receiving royalties from a copyright, and not as a self-employed writer. That means that you would report the income on Schedule E, Part I.

I've not used Schedule E before, but looking at the instructions for it, you enter this as "Royalty Property".

For royalty property, enter code “6” on line 1b and leave lines 1a and 2 blank for that property.

So, in Line 1b, part A, enter code 6. (It looks like you'll only use section A here as you only have one royalty property.) Then in column A, Line 4, enter the royalties you have received. The instructions confirm that this should be the amount that you received listed on the 1099-MISC.

Report on line 4 royalties from oil, gas, or mineral properties (not including operating interests); copyrights; and patents. Use a separate column (A, B, or C) for each royalty property.

If you received $10 or more in royalties during 2016, the payer should send you a Form 1099-MISC or similar statement by January 31, 2017, showing the amount you received. Report this amount on line 4.

I don't think that there's any relevant Expenses deductions you could take on the subsequent lines (though like I said, I've not used this form before), but if you had some specific expenses involved in producing this income it might be worth looking into further.

On Line 21 you'd subtract the 0 expenses (or subtract any expenses you do manage to list) and put the total. It looks like there are more totals to accumulate on lines 23 and 24, which presumably would be equally easy as you only have the one property. Put the total again on line 26, which says to enter it on the main Form 1040 on line 17 and it thus gets included in your income.