Royalties


D

Dick Adams

My childbride published a book around 1990. "Surnames for
Women - A Decision-Making Guide" by Susan J. Kupper, Ph.D.
She still gets annual checks from the publisher and from
copy services for use in academic reading collections.

When she was working on the book, she had no income so child
care expenses were not deductible. When the royalties began,
our older son was in elementary school so there were no such
expenses. But they are Schedule C income subject to SE tax.

My position is that writing ONE book does not put someone
in the occupational category of an author and, thus, the
revenues should be other income. I just have not gotten
anyone to agree with me.

Questions:
1) If she had sold me the copyright for $5,000, would that
transaction not have been non-taxable because it would
have been a transaction between spouses?

2) Given the $5,000 could not have been amortized because
it was never taxed, would not the royalties be other
income?

3) What if she had gifted the copyright to an educational
trust for our sons?

Now, as an auditor, I would laugh at anyone who would try
this. But I'd like some cites for why.

Dick
 
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A

A

Dick Adams said:
My position is that writing ONE book does not put someone
in the occupational category of an author and, thus, the
revenues should be other income. I just have not gotten
anyone to agree with me.
Well the Tax Court agreed with Dick:

Wilbur R. Langford and Anna L. Langford v. Commissioner
55 TCM 1267, Filed July 19, 1988
----------------------------------------------------------
It has been respondent's long-standing position that "If an
individual writes only one book as a sideline and never
revises it, he would not be considered to be 'regularly
engaged' in an occupation or profession and his royalties
therefrom would not be considered net earnings from
self-employment."

We hold, therefore, that petitioner was not in the trade or
business of being an author in 1976 or 1977 and that the
royalty income received by her in 1983 attributable to her
work in the earlier years is not net earnings from
self-employment and not subject to self-employment tax.
----------------------------------------------------------
 
M

Michael T Wing CPA

A said:
It has been respondent's long-standing position that "If an
individual writes only one book as a sideline and never
revises it, he would not be considered to be 'regularly
engaged' in an occupation or profession and his royalties
therefrom would not be considered net earnings from
self-employment."
In my opinion the most significant element in that statement
is "as a sideline," not "one." My guess is that this still
comes down to a question of facts and circumstances, rather
than a mere mechanical count.

MTW
 
D

D. Stussy

Well the Tax Court agreed with Dick:

Wilbur R. Langford and Anna L. Langford v. Commissioner
55 TCM 1267, Filed July 19, 1988
----------------------------------------------------------
It has been respondent's long-standing position that "If an
individual writes only one book as a sideline and never
revises it, he would not be considered to be 'regularly
engaged' in an occupation or profession and his royalties
therefrom would not be considered net earnings from
self-employment."

We hold, therefore, that petitioner was not in the trade or
business of being an author in 1976 or 1977 and that the
royalty income received by her in 1983 attributable to her
work in the earlier years is not net earnings from
self-employment and not subject to self-employment tax.
----------------------------------------------------------
However, even if the person were a "regular and continuous"
author, I still don't see why SE tax would apply to the
ROYALTIES. SE tax applies to the initial income paid for
the book when it went to be published - and then it's DONE.
Royalties (book or film or TV show) are paid years AFTER -
sometimes after the taxpayer has even changed professions
(if they have had no successes since)!

Except for oil or gas working interests, I don't see where
royalties are SE taxable by definition.
 
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B

Bob Sandler

However, even if the person were a "regular and continuous"
author, I still don't see why SE tax would apply to the
ROYALTIES. SE tax applies to the initial income paid for
the book when it went to be published - and then it's DONE.
Royalties (book or film or TV show) are paid years AFTER -
The "initial income" that the publisher pays an author
before the book is published is an advance against future
royalties. All the income that an author ever gets from a
book is "royalties."

Bob Sandler
(erstwhile one-book author)
 

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