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Author Topic: "Royalties" on 1099-Misc  (Read 11328 times)

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« on: April 03, 2009, 20:54 »
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Leo brought up something on iStock:
http://www.istockphoto.com/forum_messages.php?threadid=86608&page=1

About whether stock royalties should be reported as income on Schedule C, or as royalties on Schedule E on US tax forms.  Getty is reporting the income under box 2 "Royalties" on the 1099-MISC, instead of box 7 "Non-employee compensation" which I think is where this is coming from.   I report all my stock income on Schedule C.

Anybody have any discussion with their tax professional on this train of thought?  C or E ?


« Reply #1 on: April 04, 2009, 04:23 »
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Those of us who contribute to multiple sites get the pleasure of entering both royalties and non-employee compensation.  I let Turbo Tax do the work for me, and it entered all the info on Schedule C. 

« Reply #2 on: April 04, 2009, 11:58 »
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In the iRS instructions for schedule E, line 4, it says

"If you are in business as a self-employed writer, inventor, artist, etc., report your royalty income and expenses on Schedule C or C-EZ."


« Reply #3 on: April 04, 2009, 13:28 »
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Yes, but the discussion has come up that what kind of person exists that isn't a self-employed artist that would be claiming royalties there for works of music, art, etc....

« Reply #4 on: April 04, 2009, 13:44 »
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I'm Belgian, so I don't know anything about US tax forms, but were I live the difference between artist work and royalties comes from wether there is an assignment or not. 
If you make images without any assignment, and you place them in an image-bank, the income is royalties.
If some-one, like an editor, or a company that needs specific photos, asks you to create images of a particular subject (and you are self-employed) then the money paid should be put on your tax form as non-employee compensation.
For me in Belgium that means all stockphoto income is royalties, and that makes a HUGE difference in Belgium (15% tax instead of 50%).

lisafx

« Reply #5 on: April 04, 2009, 14:20 »
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I'm Belgian, so I don't know anything about US tax forms, but were I live the difference between artist work and royalties comes from wether there is an assignment or not. 
If you make images without any assignment, and you place them in an image-bank, the income is royalties.
If some-one, like an editor, or a company that needs specific photos, asks you to create images of a particular subject (and you are self-employed) then the money paid should be put on your tax form as non-employee compensation.
For me in Belgium that means all stockphoto income is royalties, and that makes a HUGE difference in Belgium (15% tax instead of 50%).


Anyka, this is a really interesting distinction.  I am going to ask my accountant if it would apply in the US too.  I have already filed for this year and took an absolute beating on taxes, but if it was possible to change the income to Schedule E as Royalties then that would be wonderful!

« Reply #6 on: April 04, 2009, 15:40 »
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That is interesting.  I hate how the IRS docs never really answer the questions you want to know.  Or even clarify their definitions of what this or that mean.

lisafx

« Reply #7 on: April 04, 2009, 16:08 »
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Just spoke with my accountant and he verified that if you are doing it as a business that you file on Schedule C.   

However, when I mentioned the question of it not being commissioned work, but all speculative creative work he said if it was from a book or something you had written years ago and was still earning royalties then it could be counted as royalty income on schedule E. 

Here's an interesting question, which he didn't have an answer to:  What about the portions of our portfolios that were created and uploaded before 2008 and are still earning income?  I calculate that only 44% of my income is on images uploaded in the last year.  The other 56% is from images uploaded prior to 2008. 

He felt that was something the IRS would have to rule on. 

IMO I don't see the difference between if I had a book published 3 years ago and am still getting royalties vs. taking pictures 3 years ago and still getting royalties. 

I really wonder if part of the problem is that most of these accountants are not that familiar with royalty based businesses.  Probably someone who does entertainment accounting for lets say musicians would have a better idea how to handle the royalty issue. 

« Reply #8 on: April 04, 2009, 17:01 »
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Yes, exactly.  Where do you draw the line, and how ever would you figure out what before that line had earned?  There needs to be more clarity.

« Reply #9 on: April 05, 2009, 06:13 »
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While not addressing Sean's specific question, I thought this publication from the State of California might be useful to some. 

Tax Tips for Photographers, Photo Finishers, and Film Processing Labs
http://www.boe.ca.gov/pdf/pub68.pdf

It's interesting to note that stock photography that is electronically transferred is not subject to sales tax in California (it only becomes taxable when it becomes tangible goods).  So...for example, my CD sales at Shutterstock/prints at iStock are taxable, while the rest of my sales are not taxable, because they are in electronic form.  Burning my images onto a CD or printing them onto a card or canvas turns them into taxable tangible goods. 
« Last Edit: April 05, 2009, 06:32 by Karimala »

« Reply #10 on: April 06, 2009, 22:03 »
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Quote
Section 1401 imposes a tax on an individual's net earnings from self-employment. The term "net earnings from self-employment" is defined as the gross income derived by an individual from any trade or business less any allowable deductions attributable to such trade or business. Sec. 1402(a). To be engaged in a trade or business within the meaning of section 1402(a) an individual must be involved in an activity with continuity and regularity; and his primary purpose for engaging in the activity must be for income or profit. Commissioner v. Groetzinger [87-1 USTC ╤ 9191], 480 U.S. 23, 35 (1987). Petitioner is an admitted author and instructor. He has written several books on Yoga and related subjects from which he has received royalties. During the years under consideration petitioner was regularly and continuously engaged in teaching Yoga workshops which produced substantial income. We have concluded hereinbefore that the deposits made to YUC's bank accounts which represent receipts from book royalties and Yoga workshops constitute income attributable to petitioner rather than YUC. Therefore all such income is self-employment income to petitioner which is subject to self-employment tax under section 1401.


http://www.taxpravo.ru/arbitration/int/article941758

Would appear to be subject to Schedule C for most of us.

« Reply #11 on: April 07, 2009, 09:14 »
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Yes, but the discussion has come up that what kind of person exists that isn't a self-employed artist that would be claiming royalties there for works of music, art, etc....

Sean, the "typical" use for schedule E is for people that have inherited the royalty rights of a work and receive it after the artist's death. For instance, any child of a dead Beatle would be filing a schedule E for the large sums in royalties that their parents' songs still generate.

The typical use for those in microstock are the 'hobby' photographers, like myself, that upload vacation photos etc. I couldn't deduct any of my expenses related to my photos under IRS regs., and if I tried and was audited there would be penalties involved. For me and other hobby shooters it would be just as legitimate to report the royalty income as 'hobby income' (line 21) as to use Schedule E and report it as royalty income on line 17.

Keep in mind that the above only applies to those for which the royalty income could be classified as mainly passive income and typically derive the vast majority of their income from a different, and unrelated source. So for example, if your day job is a portrait photographer for graduating high schoolers then the microstock income would be included as an additional revenue stream to your main business and you wouldn't use schedule E.

Circular 230 Disclaimer: To comply with IRS requirements, please be advised that, unless otherwise stated by the sender, any tax advice contained in this message is not intended or written to be used, and cannot be used, by the recipient to avoid any federal tax penalty that may be imposed on the recipient, or to promote, market or recommend to another any referenced entity, investment plan or arrangement.

« Reply #12 on: April 07, 2009, 09:43 »
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Here's an interesting question, which he didn't have an answer to:  What about the portions of our portfolios that were created and uploaded before 2008 and are still earning income?  I calculate that only 44% of my income is on images uploaded in the last year.  The other 56% is from images uploaded prior to 2008. 

He felt that was something the IRS would have to rule on. 

There are tax court decisions on the subject, and even more applicable private letter rulings. While you can't legally rely on the private letter rulings of others, they are instructive as to how the IRS treats royalties. If it is really important to you then you can always hire a tax attorney and request a private letter ruling for yourself. Personally, I wouldn't go through the expense of a private letter ruling unless you're a full time photographer that is quitting the photography business outright, or retiring, and will still have substantial royalty income. Until then, I'd keep doing what your accountant is doing.

The same 230 disclaimer in my previous post should be applied to this one.

« Reply #13 on: March 21, 2010, 11:58 »
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The typical use for those in microstock are the 'hobby' photographers, like myself, that upload vacation photos etc. I couldn't deduct any of my expenses related to my photos under IRS regs., and if I tried and was audited there would be penalties involved. For me and other hobby shooters it would be just as legitimate to report the royalty income as 'hobby income' (line 21) as to use Schedule E and report it as royalty income on line 17.


Reviving old thread  - it is April again...  Why do you think it is impossible to deduct expenses for 'hobby' photographer? My understanding of line 21 is that it shows _net_ income, and schedule E have all possible expense lines. Where am I wrong?
« Last Edit: March 21, 2010, 12:03 by UncleGene »

« Reply #14 on: March 21, 2010, 13:27 »
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Anyka, this is a really interesting distinction.  I am going to ask my accountant if it would apply in the US too.  I have already filed for this year and took an absolute beating on taxes, but if it was possible to change the income to Schedule E as Royalties then that would be wonderful!
I was actually curious how your corporation status worked out. Was it a money saver or not?

« Reply #15 on: March 21, 2010, 17:37 »
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I am reporting mine on Schedule E under Royalties, I am not doing this full time or as a profession, hence not deducting any expenses or depreciating my camera gears (the amount should not be subject to self employment tax which would be the case with Schedule C income) In my situation, the income is really passive income since the one image earns me royalties year after year (much like if one is an author and receiving royalties from book sale each year). I could treat this as a hobby and net it against my expenses and report any excess income on line 21 but I did not plan on netting income and expenses. Also in my case, it isn't too much and it won't impact my tax situation adversely.

Having said that, much of US tax laws are subject to/a matter of interpretation. If in doubt, best to err on the side of caution and consult a tax expert in each situation

« Reply #16 on: March 21, 2010, 17:47 »
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If you wanted to err on the side of caution, you would not put it under 'royalties' .  At least that's what my CPA said.


« Reply #17 on: March 21, 2010, 22:37 »
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If you wanted to err on the side of caution, you would not put it under 'royalties' .  At least that's what my CPA said.

Did he/she give you any reasons?
Though it may really depend on income proportions. That's really confusing with the code - everything is very subjective and relative. Situation for somebody getting 10% of income from microstock may be absolutely different from one for somebody with 11%.... (I still earn less than 1% :( )

PhotoDuneMicrostock Insider

 

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