Taxes From A To Z (2014): R Is For Royalties

Apr 2 2014, 2:33am CDT | by

Taxes From A To Z (2014): R Is For Royalties
Photo Credit: Forbes Business
R is for Royalties.

Royalties are funny things. Generally, we associate royalties with music – and sometimes books. But royalties are bigger than books and music: they are payments for the use of your property. That could be the use of your intellectual property but it could also be the use of your real property. The source of royalty income can run the gamut from copyrights to patents to oil, gas and mineral properties.

From a tax standpoint, royalties are generally reported to you on a form 1099-MISC at box 2 and are taxable as ordinary income. Interestingly, however, there’s no one size Schedule fits all for royalties. The kind of property determines where you report the royalties – even though the tax rate is the same.

If you hold an operating oil, gas, or mineral interest, you report those on a Schedule C or Schedule C-EZ. Similarly, if you receive royalties from your efforts as a self-employed writer, inventor or artist, you report those on a Schedule C or Schedule C-EZ. Royalty income reported on a Schedule C or Schedule C-EZ is subject to self-employment income.

Royalties for everything else are reported on Schedule E. Schedule E income is not subject to self-employment income.

Of course, natural resources don’t last forever. In order to account for what happens as you use up resources, you can take a depletion deduction at Part I of Schedule E. You can think of depletion like depreciation: it allows you to recover costs related to capital you initially contributed. And like depreciation, you have to recapture depletion at the sale of the property.

If you sell your royalty interest, it likely ceases to be treated as royalty income and may be treated as capital gains. Be careful, however, since that will vary depending on the circumstances including the specific asset.

Figuring out royalty income can be tricky. If you receive royalty income (especially royalty income subject to depletion) be sure to consult with a tax professional.

For more in the series, see:

Want more taxgirl goodness? Pick your poison: receive posts by email, follow me on twitter (@taxgirl), hang out with me on Facebook or check out my YouTube channel. If you want to keep an eye on documents I’ve posted, check out my profile on Scribd. And finally, you can subscribe to my podcast on the site or via iTunes (it’s free).

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Self-regulation skills prepare children for school
Washington, Nov 23 (IANS) Efforts to utilise music and games to help pre-schoolers learn self-regulation skills could help prepare at-risk children for kindergarten education, a new study says.
 
 
Anti-HIV drugs can affect unborn babies' hearts
Washington, Nov 23 (IANS) The drugs given to HIV-positive pregnant women can cause significant long-term heart problems for the non-HIV-infected babies they carry, says a new study.
 
 
Sound training helps brain keep distractions at bay
New York, Nov 23 (IANS) The ability to sustain focus on a goal goes down with age but researchers, including of an Indian-origin, have discovered that with the help of a sound training, even the elderly can learn to ignore distractions.
 
 
New radiation device to strengthen public security
New York, Nov 23 (IANS) A new compact radiation device that can be operated in room temperature can significantly improve public security by detecting explosives, chemical agents and dangerous biological substances from safe distances, says a study.
 
 
 

Latest from the Network

Self-regulation skills prepare children for school
Washington, Nov 23 (IANS) Efforts to utilise music and games to help pre-schoolers learn self-regulation skills could help prepare at-risk children for kindergarten education, a new study says. The intervention was...
Read more on Celebrity Balla
 
Anti-HIV drugs can affect unborn babies' hearts
Washington, Nov 23 (IANS) The drugs given to HIV-positive pregnant women can cause significant long-term heart problems for the non-HIV-infected babies they carry, says a new study. Such medicines help prevent the...
Read more on Business Balla
 
Sound training helps brain keep distractions at bay
New York, Nov 23 (IANS) The ability to sustain focus on a goal goes down with age but researchers, including of an Indian-origin, have discovered that with the help of a sound training, even the elderly can learn to...
Read more on Business Balla
 
New radiation device to strengthen public security
New York, Nov 23 (IANS) A new compact radiation device that can be operated in room temperature can significantly improve public security by detecting explosives, chemical agents and dangerous biological substances...
Read more on Business Balla
 
Trinidad takes India's support to improve water, sewerage system
Port-of-Spain, Nov 23 (IANS) India's High Commissioner to Trinidad and Tobago, Gauri Shankar Gupta announced that a team of technical officials from the Water and Sewerage Authority (WASA) will visit India next month...
Read more on Politics Balla
 
Office Depot ready for Black Friday
Office Depot is looking to cash in on laptops and tablets for the upcoming 2014 version of the Black Friday selling holiday. Office Depot plans on offering huge deals on several name brand computers. The company says...
Read more on Black Friday Countdown
 
Amazon set for Black Friday
Black Friday does not officially kick off until November 28th but one company who is taking a different approach to the holiday selling bonaza is Amazon. The company announced this week that their Black Friday specials...
Read more on Black Friday Countdown
 
39 injured as earthquake hits Japan
Tokyo, Nov 23 (IANS) At least 39 people were injured after a 6.7-magnitude quake on the Richter scale hit Japan, media reported Sunday. The quake hit Nagano City and Hakuba village in Japan, where at least 10 homes...
Read more on Politics Balla
 
Three killed in mine explosion in Malaysia
Kuala Lumpur, Nov 23 (IANS) At least three workers were killed and 24 others, six of them serious, injured in an explosion in a coal mine in Malaysia, media reported Sunday. The explosion took place in a coal mine in...
Read more on Politics Balla
 
UN slams terrorist attack in Kenya
United Nations, Nov 23 (IANS) UN Secretary-General Ban Ki-moon condemned the terrorist attack on a bus in northern Kenya that left at least 28 people dead. "The secretary-general condemned the attack Saturday on a...
Read more on Politics Balla