How to Report Book Sales Royalties on Your Tax Return
Authors often ask:
“My publisher pays me royalties on the sale of my book. How do I report these on my tax return?”
If you’re a self-employed author, artist, or inventor, you report royalty income and expenses on Schedule C.
Royalty income includes:
- License fees received for use, manufacture, or sale of a patented article
- Renting fees received from patents, copyrights, and depletable assets, such as oil wells
- Author’s royalties, including advance royalties, if not a loan
- Royalties for musical compositions and works of art
Types of Royalty Income
Royalty income can come in two forms for tax reporting purposes.
Royalties received result from creative work such as writing, music and art, is considered self-employment income and is reported on Schedule C.
Royalties received through the use, manufacture, or sale of a patented article, or an investment in a mineral operation, such as a gas and oil limited partnerships are reported on Schedule E.
All royalties you receive as a writer are to be reported to the Internal Revenue Service. If you received royalties during the year totaling $10.00 or more, your publisher will send you a 1099 Misc. Form by the end of January. This form is for your records and lets you know the amount your publisher has reported to the Internal Revenue Service.
You DO NOT need to send your 1099 form with your tax return, as you do your W-2 form. It’s for your reference and tax records.
For more information on Royalties see the Department of the Treasury’s instructions for Schedule C and Schedule E
What Are Your Experiences with Reporting Income?
As an author, what experiences have you had with reporting your royalties? Feel free to leave us a comment as we would love to hear more about your experience with this topic and what other authors and writers can learn from it. Also, let us know if you found this article helpful, or if there’s similar information we can write on for future articles.
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Jan,
Thank you for the timely information. In addition to the information you provided, you asked for authors comments regarding experiences we have had with reporting our royalties. For me, the 1099-MISC you provide, is the easiest of all the other ways I have experienced. Reporting consignment sales is second. However, because consignments sales are not consolidated on one form, having to keep up with checks issued by the store is manageable, but time consuming. I prefer one statement with all sales for any given year.
Also, both of the previously mentioned methods do not include sales tax – which is great! This (collecting sales tax) is what makes personal sales my least favorite. Although this is the method where the most profit is generated, having to collect local sales tax and report such to the state is very time consuming because the state tax forms are not user friendly at all! Since I haven’t quit my full time job, I must continue to maintain accurate accounting records for the purpose of reporting sales tax to the appropriate state and income to the IRS.
Verna Foster Harvey
Author, Speaker, Inspirational Teacher
Hi Verna
Thank you for sharing your experience of selling books and reporting royalties from an author’s perspective. I appreciate how you covered the pros and cons of the different sales options that are available to authors.
Sincerely,
Jan
I am finding this year’s taxes to be a bit confusing. The good news is I have some royalty income to report on my books and cartoons; the bad news is I don’t know whether to put it on Schedule E, add it to my existing Schedule C (I am a self-employed graphic designer) or create a new Schedule C for my writing business! You’re supposed to have a Schedule C if you’re a self-employed writer. (Are there other kinds? I suppose you could work for a magazine and have an article be syndicated, then claim royalties on that… but that’s just my imagination.)
Fortunately I’ve kept pretty good records (God bless Quicken and the complex categories we can create!). But it’s always an eye-opener at tax time. I advise writers and artists to set up their Quicken categories at tax-time, even while they’re going through TurboTax. Which, by the way, is a wonderful tool (I like the online version) and an education in itself.
Thank you, this was a helpful article.
Hi Kristen,
Congratulations on your royalty income for your books and cartoons. Royalty income for writers, inventors and artists are reported on Schedule C. You will only need to file one Schedule C, as a business can offer a variety of services.
IRS Publication 17 states:
“You generally 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).”
Glad to hear you have kept good records. This pays off not only at tax time but during the year as well.
I agree with you about Quicken and Turbo Tax. They are both excellent programs. QuickBooks, which is created by the same company as Quicken, is their business accounting program and has more features for small businesses than Quicken. You may want to consider upgrading to QuickBooks as your business grows.
Best of luck with your books and cartoons.
Sincerely,
Jan
At this point I need to know the simplest method (I am not too computer savvy) of setting up my personal records. As a retired teacher, I am more concerned with my expenses than royalties this year (my first book to be published) – can I take a deduction for my business expenses?
Hi Jan,
The most widely used accounting program for small business is QuickBooks. Another program made by the same company, Intuit, is Quicken Home and Office. Both of these programs are excellent for small businesses and will keep track of all the information you need for your taxes.
You mentioned you are not too computer savvy, if you prefer to use a manual system you can visit any office supply store and ask them for a manual accounting book.. This book will provide pages for recording and classifying your income and expenses for your tax records. Remember to save all of your receipts for your business expenses.
You may be interested a blog I wrote on How to report books sales to the IRS. You can search “Jan Owens” in the search box to locate it. Here I list some of the important steps to show you are serious about your book selling business.
Congratulations on your first book!
Sincerely,
Jan
As long as a songwriter receives royalties from songs written a long time ago like the 70′s and 80′s that is reported on a 1099 misc he should continue to claim this on a schedule C even if there are no deductions. Is this right?
Hi Amanda,
Yes, as long as you receive any royalties from your songs they should be reported on a Schedule C, even if there are no deductions.
Sincerely,
Jan
Back in 2002, on the advice of my CPA, I formed a C-corp which conducts my businesses as a bestselling author (in print since 1970), commercial illustrator, songwriter, touring and recording performance artist (4 CDs released and toured since 2000), record label, record producer, wedding, tour and event coordinator, fine artist (gallery sales), art/personal growth workshop leader, and wholesale and retail sales outlet for my books, CDs, and art reproductions. So, I file business income taxes as a corporation, even though I am a one-person business.
I recently moved to Arizona, and I’m trying to figure out from the state tax office’s online information on TPT (transaction privilege tax, which is mostly a sales tax) licenses, whether my corporation (which just got its TPT license) pays TPT taxes on my book royalties, or only pays taxes on them as part of corporate state and federal income taxes. My commercial illustration fees and live performance fees are considered services, not sales of products, and therefore not taxable in the TPT system, only as corporate income.
Thanks for weighing in on this, Jan! All the best,
Alicia
I’m a first time author, I expect to have my book in print within 2 – 3 months from now. I’m concerned about owing taxes (Money) to the IRS on book sells. My question is, when somone buys one of my books, via the publishers website, will the taxes paid at the point-of-sale go directly to the IRS or is there something that I must do to ensure that taxes generated on my books sells are paid to the IRS?
Also, can I use the taxes paid on my books sells as a tax deduction on my tax return?
Hi Marie,
Congratulations on being a first time author. We wish you every success with your book.
When one of your books is sold through your publisher, the publisher takes care of collecting and paying any sales tax due.
Your responsibility is to report to the Internal Revenue Service and your state the portion of the sale amount the publisher sends to you. Two of the most common ways publishers compensate their authors are as follows:
Royalty Income
• The publisher pays you a royalty on each book sale and sends you a 1099-Misc Form at the end of the year.
• If your royalties for the year are less than $10.00 you will not receive a 1099-Misc Form but are still required to report this income on your Federal Income Tax Return, using Schedule C.
• Remember you can also deduct any expenses from your writing business on this form
Consignment Income
• Another arrangement an author can have with their publisher is a consignment sale agreement. In this situation all the books are owned by the author and the publisher provides fulfillment services by handling any orders that are placed through the publisher or the bookstores and distributors the publisher works with.
• The publisher collects and pays any sales tax on the orders and then issues a payment to the author for their agreed upon portion of the sale.
• The income you receive is reported to the Internal Revenue Service, on Schedule C, and to your state
Are Taxes Paid on My Books Deductible
Some of the taxes paid on your book sales are deductible and some are not. Sales tax on your book sales are not deductible as this is collected when a book is sold, kept in a payable account, and then paid to your state monthly, quarterly or annually. Additional taxes that may be required by your state can be deductible. It is best to consult with a CPA or tax preparer in your state for more specific information on your situation.
If you have any other questions, please let me know.
All the best,
Jan
I have a self-published book that has begun to generate quite a bit in sideline income. I have used a Schedule C to report income from my book writing in the last three years so I could deduct expenses, just as I did when I was a self-employed freelance writer from 1980-1997. And I have used Turbo Tax for filing. Although I currently also work full-time, I may soon retire and, at that point, the book royalties would become my only earned income. Here’s my question: Are book royalties the kind of earned income that are subject to payment of FICA and Medicare taxes in addition to regular income? Does anyone have an answer? Thanks.
Hi,
I have a written a book for which I am getting royalties after taxes. I am not a US resident. So I want to know, how can I get refund of my taxes deducted. I also file taxes in my country India. Any type of help would be appreciated.
Thanks.
Tanmaya
I documented all of my expenses this year when I self-published a book. Between printing, website, shipping, and $5,000 for a literary publicist’s services, I’ve spent ~$12,000. Hopefully, this year will bring in some profits. My question is, can I list all of my expenses as tax deductions (they fit well within the guidelines it seems-they are legitimate expenses to publish and market the book) but the tax guidelines I’ve read are confusing. As long as I have good documentation, a business plan and hopefully some profits in the next few years, can I deduct all of these expenses? I’m hearing only about $3,000-$4,000, but another place says up to $10,000-the laws changed in 2010?
i m author and i will deal my hand copy to someone for two years publishing contract.and contract ammount given by someone only once time means he give me lumsum money when contract sign.so any tax pay by me in government for this contract?
I have a question about how to treat royalty advances that are used to pay expenses. I am an author, and I received a 1099 from my publisher for a payment made on my behalf to a vendor who did some of the graphic work for my book (about $2K). This payment was made from an advance on my royalties. So, I presume that this gets treated as royalty income, but can I also deduct some or all of it as a business expense?
Do some writers set up a corporation to receive the royalties, with the corporation then paying them as an employee? Is this a good way to go?
I have a question about the ebook royalties. Amazon is selling an ebook authored by my husband, through multiple sites including Amazon UK site. Do we owe income tax on the royalty income from UK site (no tax was withheld by Amazon)? Thanks.
I have a questions about how to list book royalties when you are filing for a foreign earned income exclusion. We are Americans living in the UK. My husband’s income includes book royalties from UK companies, on which UK taxes have been deducted. We list his UK salaries and wages on Form 2555. But would his royalties be added to his salaries and wages? We don’t think they go on Schedule C for business profit, as that would then be taxed as US income, and it’s UK income for which UK tax has been paid. What should we do?
I’ve been unemployed for several years. I received $20 in royalties in 2011 concerning a book published by my deceased father. It’s over $10 therefore it has to be reported as royalty income. I am filing jointly with my spouse. We’re using TurboTax which requires me to declare a business to report the ‘book royalty income’ but I don’t have a business. Is there a simpler way to report this not very large sum of money without declaring a business?
Thank you in advance for your time and comments.
I received less than $400 in royalties this year for books I published several years ago. I do not have a business and am not self-employed; I now have a full-time job and no longer receive income from writing. When they called the IRS, they told me to report this royalty income on Schedule E, not Schedule C. I am doing so in TurboTax and am stumped by what to put for the name and address of my “property.” (Schedule E is set up for people who have oil and gas royalties.) I am just putting my home address and hoping that I got the correct advice from the person I talked to at the IRS.
Can someone please explain why you are taxed on royalties of the books you sell? I’ve never really understood it. I’ve paid taxes on other things, like working for a company and the like, but when it comes to writing books I am in the mindset that that’s absolutely private. Yes, it’s income, but it’s not like you’re working for anybody (aside from the publisher, but that’s also separate from the author.) It’s like taxing somebody for having having an imagination and using it…. :/
That’s a really good point. I wonder if the same applies to music or artwork. Technically the government is going to want you to report all income, but to tax it does seem a bit strange.
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