Royalties


D

Dick Adams

My childbride gets royalties from two different sources.
The first are from her only published book and in a good
year that will be around $200. FICA is not applicable.

The second is from her late uncle's musical recordings.
He died about 20 years ago and willed them to her
mother who died in 2009. Susan and her sister each
own 50% of the royalties. It's around $1500/yr each.
Unless I am wrong, these royalties subject to FICA?

Could FICA have been avoided by tax planning - as in
Paul McCartney and Michael Jackson purchasing each
other's music.

Dick - A kept man and loving it!
 
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A

Arthur Kamlet

My childbride gets royalties from two different sources.
The first are from her only published book and in a good
year that will be around $200. FICA is not applicable.

This royalty income is reported on Schedule C (more likely C-EZ
and some would just throw it on Line 21 marked misc royalty
income.)


It is generally subject to SE tax, but if the only Sch C income
she has is $200, that's below the threshold for paying SE tax.

And legitimate expenses are deductible on Sch C.

The second is from her late uncle's musical recordings.
He died about 20 years ago and willed them to her
mother who died in 2009. Susan and her sister each
own 50% of the royalties. It's around $1500/yr each.
Unless I am wrong, these royalties subject to FICA?

Since her income is not a product of her own work, it is not
subject to SE tax. For such a small amount it can be reported
on Line 21 as Misc royalty income, or on Schedule E, where
any expenses, such as agent fees if any, can be deducted. No SE.
Could FICA have been avoided by tax planning - as in
Paul McCartney and Michael Jackson purchasing each
other's music.
Fancy games can cause trouble.

Only the royalties from her own work efforts are potenially
subject to SE. So she should try to move expense payments into
a year in which this income is more than the SE tax threshold.


That threshold is $400 of "Net Income from self Employment"
which is a number found on Schedule SE Line 3 (from memory,
see the actual schedule where it is called ne income from self
employment.)



Dick - A kept man and loving it!

Dick,
 
R

removeps-groups

It is generally subject to SE tax, but if the only Sch C income
she has is $200, that's below the threshold for paying SE tax.
If she has other businesses with say $300, then the total is $500 and it
becomes subject to SE tax.
 
D

Dick Adams

This royalty income is reported on Schedule C (more likely C-EZ
and some would just throw it on Line 21 marked misc royalty
income.)
The book is "Surnames for Women: A Decision-Making Guide",
Susan J. Kupper, Ph.D., MacFarland (1994). It's out of print
so the royalties are from Copy Machine reprints of chapters
by enlightened feminist academics.

For about four years, the royalties were between $600 to $900
and my argument that since this was the only book she ever wrote,
the royalties were not subject to FICA prevailed with three tax
professors.
Since her income is not a product of her own work, it is not
subject to SE tax. For such a small amount it can be reported
on Line 21 as Misc royalty income, or on Schedule E, where
any expenses, such as agent fees if any, can be deducted. No SE.
Thank you. I was unaware.
Fancy games can cause trouble.
And they usually do!

Dick
 
A

Arthur Kamlet

The book is "Surnames for Women: A Decision-Making Guide",
Susan J. Kupper, Ph.D., MacFarland (1994). It's out of print
so the royalties are from Copy Machine reprints of chapters
by enlightened feminist academics.

For about four years, the royalties were between $600 to $900
and my argument that since this was the only book she ever wrote,
the royalties were not subject to FICA prevailed with three tax
professors.
Unless they sign the preparer jurat on her return, they can
afford to be quite aggressive.


I take a more conservative view: Since she spent a non-trivial
amount of time and research to write this book, even the one
book is the byproduct of considerable business work on her part,
earned her some income, and was not a hobby. Sch C.


Had she chosen to hire one or more ghostwriters, and let them do
all the work, there might be an argument that she did not have
income from her own trade or business. I'd have to think about
that scenario some more.
 
P

Pico Rico

Arthur Kamlet said:
Unless they sign the preparer jurat on her return, they can
afford to be quite aggressive.


I take a more conservative view: Since she spent a non-trivial
amount of time and research to write this book, even the one
book is the byproduct of considerable business work on her part,
earned her some income, and was not a hobby. Sch C.


Had she chosen to hire one or more ghostwriters, and let them do
all the work, there might be an argument that she did not have
income from her own trade or business. I'd have to think about
that scenario some more.
that sounds MORE like it is her trade or business.
 
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D

Dick Adams

(e-mail address removed) (Arthur Kamlet)
Unless they sign the preparer jurat on her return, they can
afford to be quite aggressive.
That is an excellent point and its humor did not go unnoticed.
I take a more conservative view: Since she spent a non-trivial
amount of time and research to write this book, even the one
book is the byproduct of considerable business work on her part,
earned her some income, and was not a hobby. Sch C.
Sometimes a hobby might produce earned income. At the time I
discussed this with tax professors, I had chapter and verse that a
sole publication with no intention of even updating the book had
royalties not subject to FICA. Unfortunately I do no have that
information today.

Keep in mind that the main point of this thread was how to avoid
FICA on inherited royalties. The book royalties was a comment.
Had she chosen to hire one or more ghostwriters, and let them do
all the work, there might be an argument that she did not have
income from her own trade or business. I'd have to think about
that scenario some more.
Ghostwriters are in the trade or business of writing so there should
be no question that their royalties are subject to FICA.

Dick
 
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S

Seth

(e-mail address removed) (Arthur Kamlet)

Ghostwriters are in the trade or business of writing so there should
be no question that their royalties are subject to FICA.
Ghostwriters generally get a flat fee. The issue is the royalties to
the "author" (that is, the person whose name appears on the book).

Seth
 

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