Author Topic: Do I have to file Schedule C for income from microstock? (Read 1315 times)

digipro · « **on:** March 23, 2024, 15:20 »

Question for contributors in the US.
When filing taxes to IRS is this a legal way -> form 1040 -> Schedule 1 (line 6 royalties) + Schedule E (income line 4 royalties)?
All my 1099MISC forms do say Royalties box 4.
I want to simplify things, and it seems like if I file Schedule C (profit and loss), it will require me to pay self-employment tax, and I can't think of any deductions that would lower my net income.

dbvirago · « **Reply #1 on:** March 23, 2024, 18:47 »

I can't answer the first part of your question, but the Schedule C is where you will be able to declare all your expenses and deductions, like cameras, lenses, computer equipment, etc. I can't imagine you will be better off declaring all of the income with none of the deductions.

Uncle Pete · « **Reply #2 on:** March 24, 2024, 11:28 »

Quote from: dbvirago on March 23, 2024, 18:47

I can't answer the first part of your question, but the Schedule C is where you will be able to declare all your expenses and deductions, like cameras, lenses, computer equipment, etc. I can't imagine you will be better off declaring all of the income with none of the deductions.

That's the way my accountant does it, Schedule C. But, make a note, cameras, lenses, computers, Etc. "equipment" is depreciated not deducted. Expenses, fuel, travel, lodging, supplies, are deductions.

Sean Locke Photography · « **Reply #3 on:** March 24, 2024, 15:53 »

No, it is income and not what is considered “royalties”. You will need to pay self employment tax.

spike · « **Reply #4 on:** March 29, 2024, 23:02 »

Quote from: Sean Locke Photography on March 24, 2024, 15:53

No, it is income and not what is considered “royalties”. You will need to pay self employment tax.

Depends. True if it's active and makes the majority of your income. If it's passive, then it's Schedule E, no self employment tax.

At least that's what my CPA said.

cascoly · « **Reply #5 on:** March 31, 2024, 07:55 »

Quote from: spike on March 29, 2024, 23:02

Quote from: Sean Locke Photography on March 24, 2024, 15:53
No, it is income and not what is considered “royalties”. You will need to pay self employment tax.

Depends. True if it's active and makes the majority of your income. If it's passive, then it's Schedule E, no self employment tax.

At least that's what my CPA said.

you need a 2nd opinion! or a new CPA - do they understand that royalty-free doesnt mean you're receiving royalties?

Sean Locke Photography · « **Reply #6 on:** March 31, 2024, 08:07 »

Quote from: spike on March 29, 2024, 23:02

Quote from: Sean Locke Photography on March 24, 2024, 15:53
No, it is income and not what is considered “royalties”. You will need to pay self employment tax.

Depends. True if it's active and makes the majority of your income. If it's passive, then it's Schedule E, no self employment tax.

At least that's what my CPA said.

Incorrect.

“ Even though an individual is retired and not currently involved in his or her creative pursuit of income, any royalties received are business income if the individual was engaged in the business at the time the material generating the royalties was produced.”

https://www.thetaxadviser.com/issues/2013/dec/kelley-dec2013.html

spike · « **Reply #7 on:** April 06, 2024, 12:36 »

Quote from: Sean Locke Photography on March 31, 2024, 08:07

Quote from: spike on March 29, 2024, 23:02
Quote from: Sean Locke Photography on March 24, 2024, 15:53
No, it is income and not what is considered “royalties”. You will need to pay self employment tax.

Depends. True if it's active and makes the majority of your income. If it's passive, then it's Schedule E, no self employment tax.

At least that's what my CPA said.

Incorrect.

“ Even though an individual is retired and not currently involved in his or her creative pursuit of income, any royalties received are business income if the individual was engaged in the business at the time the material generating the royalties was produced.”

https://www.thetaxadviser.com/issues/2013/dec/kelley-dec2013.html

Does it get tiresome to be a contrarian for the sake of being contrarian, even when you contradict yourself:

Quote from: Sean Locke Photography on September 21, 2020, 12:01

"Royalty" income is for when you are no longer actively participating in the production. If I stopped creating content as my "job" and then just sat back, it becomes "royalty" income.

Quote from: Sean Locke Photography on October 06, 2020, 07:57

No. All the links and reading say that if you’re not actively participating in production, then it becomes “royalties” for the purposes of taxes.

So, you initially agree that it's actual royalties, Sch E, when you're not actively participating in production.

And now you say that despite not actively participating, it's Sch C

Can you make up your mind?

spike · « **Reply #8 on:** April 06, 2024, 12:42 »

Quote from: cascoly on March 31, 2024, 07:55

Quote from: spike on March 29, 2024, 23:02
Quote from: Sean Locke Photography on March 24, 2024, 15:53
No, it is income and not what is considered “royalties”. You will need to pay self employment tax.

Depends. True if it's active and makes the majority of your income. If it's passive, then it's Schedule E, no self employment tax.

At least that's what my CPA said.
you need a 2nd opinion! or a new CPA - do they understand that royalty-free doesnt mean you're receiving royalties?

Maybe I need a new CPA, but I haven't had any issues so far at least. They told me that since I'm not actively pursing this, it is considered passive income, and royalties are reported on Sch E.

I have created all of my stock assets before moving to the US, so I haven't engaged in any stock production on American Soil (tm). Why would I pay self-employment tax?

Anyway I can ask again, or ask another CPA, but it doesn't seem that it would make sense to go on Sch C in my case. Your cases may be different.

cascoly · « **Reply #9 on:** April 07, 2024, 11:16 »

Quote from: spike on April 06, 2024, 12:42

Quote from: cascoly on March 31, 2024, 07:55
Quote from: spike on March 29, 2024, 23:02
Quote from: Sean Locke Photography on March 24, 2024, 15:53
No, it is income and not what is considered “royalties”. You will need to pay self employment tax.

Depends. True if it's active and makes the majority of your income. If it's passive, then it's Schedule E, no self employment tax.

At least that's what my CPA said.
you need a 2nd opinion! or a new CPA - do they understand that royalty-free doesnt mean you're receiving royalties?

...

I have created all of my stock assets before moving to the US, so I haven't engaged in any stock production on American Soil (tm). Why would I pay self-employment tax?
....

that's new info you didnt bother to tell us earlier

spike · « **Reply #10 on:** April 07, 2024, 19:34 »

Quote from: cascoly on April 07, 2024, 11:16

Quote from: spike on April 06, 2024, 12:42
Depends. True if it's active and makes the majority of your income. If it's passive, then it's Schedule E, no self employment tax.
that's new info you didnt bother to tell us earlier

Literally does not matter. I said "If it's passive, then it's Schedule E, no self employment tax."

And that seems to be true. Where I created the assets should not play a role, I could have created them in the US, and if I stopped, then it would be Sch E.

Mrblues101 · « **Reply #11 on:** April 08, 2024, 01:01 »

I'm curious: for US citizens, microstock agencies withhold the taxes amount like for foreigners? For me for example they withhold 30% of the incoming for sales in USA.

Uncle Pete · « **Reply #12 on:** April 08, 2024, 10:47 »

Quote from: Mrblues101 on April 08, 2024, 01:01

I'm curious: for US citizens, microstock agencies withhold the taxes amount like for foreigners? For me for example they withhold 30% of the incoming for sales in USA.

No, but if I work for someone else they have mandatory withholding. You can understand, if people didn't have to pay in, how difficult collecting would be, after the money was spent. Instead we get a refund, which is actually our money to start with? Wow and that's supposed to make me happy?

Self employed, we must report income quarterly and make quarterly payments. Self employed must pay their own Social Security and Medicare taxes. Someone who is employed and also self employed can avoid this, as long as their contributions, cover the taxes due at the end of the year. Otherwise, quarterly payments must be made.

Your country is withholding taxes, for the US government as part of the tax treaty. In theory you should not pay US taxes and you should be able to recover this money, either as credits or some other way, when you pay your taxes in your country.

Ask a CPA, before you believe something that someone writes on a forum. (that includes me!) Or write and ask the IRS? The difference between schedule E and schedule C is passive and non-passive income. Deciding which the income is, will decide the correct form.

Whether someone is making new images or not, doesn't determine if it's passive income or not, it's about how the money is earned. There's a conflict in that commissions are different than royalties. Royalties are passive income. In my opinion, and because we get 1099s, and because my accountant reports my income from stock on a schedule C, which shows profit and loss, that's the correct form.

Clients acquire the photos on a commission basis and can use them for personal use only, like for blogs or websites, but the copyright remains in the hands of the photo’s author. Stock agencies pay a commission to photographers from each sale. They are NOT paying us a royalty. = Schedule C, not E.

Quote from: spike on April 07, 2024, 19:34

Quote from: cascoly on April 07, 2024, 11:16
Quote from: spike on April 06, 2024, 12:42
Depends. True if it's active and makes the majority of your income. If it's passive, then it's Schedule E, no self employment tax.
that's new info you didnt bother to tell us earlier

Literally does not matter. I said "If it's passive, then it's Schedule E, no self employment tax."

And that seems to be true. Where I created the assets should not play a role, I could have created them in the US, and if I stopped, then it would be Sch E.

Nope, doesn't matter, it's not passive income, it's commissions. It's taxed, whether you want to call it self employment tax or income tax. It's income tax. Doesn't matter where you made them or if you are still active, it's taxable income from commissions.

Please go ask a CPA.

cascoly · « **Reply #13 on:** April 08, 2024, 14:14 »

Quote from: Mrblues101 on April 08, 2024, 01:01

I'm curious: for US citizens, microstock agencies withhold the taxes amount like for foreigners? For me for example they withhold 30% of the incoming for sales in USA.

no, none of my US agencies withhold taxes on my accts - only one is AUS based Canva, & i I get those withholdings back when i file my taxes

Sean Locke Photography · « **Reply #14 on:** April 10, 2024, 07:04 »

Quote from: spike on April 06, 2024, 12:36

Can you make up your mind?

Yep. I was previously incorrect. Further research can do that.

Diana Herrmann · « **Reply #15 on:** April 10, 2024, 08:54 »

Quote from: spike on April 06, 2024, 12:42

Quote from: cascoly on March 31, 2024, 07:55
Quote from: spike on March 29, 2024, 23:02
Quote from: Sean Locke Photography on March 24, 2024, 15:53
No, it is income and not what is considered “royalties”. You will need to pay self employment tax.

Depends. True if it's active and makes the majority of your income. If it's passive, then it's Schedule E, no self employment tax.

At least that's what my CPA said.
you need a 2nd opinion! or a new CPA - do they understand that royalty-free doesnt mean you're receiving royalties?

Maybe I need a new CPA, but I haven't had any issues so far at least. They told me that since I'm not actively pursing this, it is considered passive income, and royalties are reported on Sch E.

I have created all of my stock assets before moving to the US, so I haven't engaged in any stock production on American Soil (tm). Why would I pay self-employment tax?

Anyway I can ask again, or ask another CPA, but it doesn't seem that it would make sense to go on Sch C in my case. Your cases may be different.

Passive income is the IRS definition, not if you are working or not. Money from Microstock is commissions, you are an independent contractor and self employed. https://www.irs.gov/instructions/i1040sc
If you are inactive and the money is from a hobby, you aren't in business and can't take deductions.

spike · « **Reply #16 on:** April 10, 2024, 12:35 »

Quote from: Diana Herrmann on April 10, 2024, 08:54

Quote from: spike on April 06, 2024, 12:42
Quote from: cascoly on March 31, 2024, 07:55
Quote from: spike on March 29, 2024, 23:02
Quote from: Sean Locke Photography on March 24, 2024, 15:53
No, it is income and not what is considered “royalties”. You will need to pay self employment tax.

Depends. True if it's active and makes the majority of your income. If it's passive, then it's Schedule E, no self employment tax.

At least that's what my CPA said.
you need a 2nd opinion! or a new CPA - do they understand that royalty-free doesnt mean you're receiving royalties?

Maybe I need a new CPA, but I haven't had any issues so far at least. They told me that since I'm not actively pursing this, it is considered passive income, and royalties are reported on Sch E.

I have created all of my stock assets before moving to the US, so I haven't engaged in any stock production on American Soil (tm). Why would I pay self-employment tax?

Anyway I can ask again, or ask another CPA, but it doesn't seem that it would make sense to go on Sch C in my case. Your cases may be different.

Passive income is the IRS definition, not if you are working or not. Money from Microstock is commissions, you are an independent contractor and self employed. https://www.irs.gov/instructions/i1040sc
If you are inactive and the money is from a hobby, you aren't in business and can't take deductions.

Yes, so according to the link you shared:

"Use Schedule C (Form 1040) to report income or (loss) from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity, a not-for-profit activity, or a hobby does not qualify as a business. To report income from a nonbusiness activity, see the instructions for Schedule 1 (Form 1040), line 8j."

It's not a business - it's a hobby.

I don't take deductions.

So it's not Sch C.

Where is the disagreement coming from?

Uncle Pete · « **Reply #17 on:** April 11, 2024, 20:16 »

Quote from: spike on April 10, 2024, 12:35

Quote from: Diana Herrmann on April 10, 2024, 08:54
Quote from: spike on April 06, 2024, 12:42
Quote from: cascoly on March 31, 2024, 07:55
Quote from: spike on March 29, 2024, 23:02
Quote from: Sean Locke Photography on March 24, 2024, 15:53
No, it is income and not what is considered “royalties”. You will need to pay self employment tax.

Depends. True if it's active and makes the majority of your income. If it's passive, then it's Schedule E, no self employment tax.

At least that's what my CPA said.
you need a 2nd opinion! or a new CPA - do they understand that royalty-free doesnt mean you're receiving royalties?

Maybe I need a new CPA, but I haven't had any issues so far at least. They told me that since I'm not actively pursing this, it is considered passive income, and royalties are reported on Sch E.

I have created all of my stock assets before moving to the US, so I haven't engaged in any stock production on American Soil (tm). Why would I pay self-employment tax?

Anyway I can ask again, or ask another CPA, but it doesn't seem that it would make sense to go on Sch C in my case. Your cases may be different.

Passive income is the IRS definition, not if you are working or not. Money from Microstock is commissions, you are an independent contractor and self employed. https://www.irs.gov/instructions/i1040sc
If you are inactive and the money is from a hobby, you aren't in business and can't take deductions.

Yes, so according to the link you shared:

"Use Schedule C (Form 1040) to report income or (loss) from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity, a not-for-profit activity, or a hobby does not qualify as a business. To report income from a nonbusiness activity, see the instructions for Schedule 1 (Form 1040), line 8j."

It's not a business - it's a hobby.

I don't take deductions.

So it's not Sch C.

Where is the disagreement coming from?

You're right, you have a choice.

"Yes, you must pay taxes on any income generated from your hobby, even if it’s just a few dollars. The Internal Revenue Service (IRS) considers any income earned from a hobby as taxable income. Therefore, you’ll need to report it on your tax return and pay taxes on it. However, there’s a key difference: taxpayers with hobby income (not considered business income) can avoid self-employment taxes. If you incurred any hobby-related expenses, you might be able to deduct them as well. "

If someone wants to avoid self-employment taxes, they can just declare just income. If you want to deduct expenses, which I believe would be to my benefit, so I do, then you file a Schedule C. But income is income, no matter what, if you are a US resident, and you must pay income taxes.

alan b traehern · « **Reply #18 on:** April 12, 2024, 08:00 »

Just can't wait for April 15th when this discussion will end.

spike · « **Reply #19 on:** April 13, 2024, 11:53 »

Quote from: Uncle Pete on April 11, 2024, 20:16

You're right, you have a choice.

"Yes, you must pay taxes on any income generated from your hobby, even if it’s just a few dollars. The Internal Revenue Service (IRS) considers any income earned from a hobby as taxable income. Therefore, you’ll need to report it on your tax return and pay taxes on it. However, there’s a key difference: taxpayers with hobby income (not considered business income) can avoid self-employment taxes. If you incurred any hobby-related expenses, you might be able to deduct them as well. "

If someone wants to avoid self-employment taxes, they can just declare just income. If you want to deduct expenses, which I believe would be to my benefit, so I do, then you file a Schedule C. But income is income, no matter what, if you are a US resident, and you must pay income taxes.

What would I even deduct? I'm not sure what your circumstances are, but for me as someone who's not actively engaging in asset production, I have no idea what I could even deduct. I sold my dSLR in 2020 or 2021 and haven't looked back. My laptop is worth around 1k, and I have no expenses except for a microstock stats service to sometimes check which types of assets are selling.

So, for me, since I don't deduct anything, I use Sch E. Nobody is talking about "not paying income taxes" at all, I don't know why you felt the need to mention that.

Uncle Pete · « **Reply #20 on:** April 14, 2024, 12:22 »

Quote from: spike on April 13, 2024, 11:53

Quote from: Uncle Pete on April 11, 2024, 20:16
You're right, you have a choice.

"Yes, you must pay taxes on any income generated from your hobby, even if it’s just a few dollars. The Internal Revenue Service (IRS) considers any income earned from a hobby as taxable income. Therefore, you’ll need to report it on your tax return and pay taxes on it. However, there’s a key difference: taxpayers with hobby income (not considered business income) can avoid self-employment taxes. If you incurred any hobby-related expenses, you might be able to deduct them as well. "

If someone wants to avoid self-employment taxes, they can just declare just income. If you want to deduct expenses, which I believe would be to my benefit, so I do, then you file a Schedule C. But income is income, no matter what, if you are a US resident, and you must pay income taxes.

What would I even deduct? I'm not sure what your circumstances are, but for me as someone who's not actively engaging in asset production, I have no idea what I could even deduct. I sold my dSLR in 2020 or 2021 and haven't looked back. My laptop is worth around 1k, and I have no expenses except for a microstock stats service to sometimes check which types of assets are selling.

So, for me, since I don't deduct anything, I use Sch E. Nobody is talking about "not paying income taxes" at all, I don't know why you felt the need to mention that.

The OP was talking about avoiding personal income taxes. That's where this started.

Quote from: digipro on March 23, 2024, 15:20

Question for contributors in the US.
When filing taxes to IRS is this a legal way -> form 1040 -> Schedule 1 (line 6 royalties) + Schedule E (income line 4 royalties)?
All my 1099MISC forms do say Royalties box 4.
I want to simplify things, and it seems like if I file Schedule C (profit and loss), it will require me to pay self-employment tax, and I can't think of any deductions that would lower my net income.

Yes, you do have unusual circumstances, where you are not shooting, don't have the DSLR and are just collecting residual income. True it wouldn't make sense for you to try to add deductions like expenses, when you don't have them. Also this is not "passive income" as it is commissions.

Anyone who is active and owns equipment or travels, or owns a computer, pays for cards and batteries or lenses, would most likely benefit from using the Schedule C. Aside from the depreciation which is spread out over time, pretty much any of us, could write off expenses.

It's a choice. One has many more potential benefits for most of us, than the other. Paying in to Medicare and Social Security has distant benefits, that's also a choice. Have the money now or get something back after age 62.

But still, the choice of which form, depends on the circumstances.

My expenses last year were $2161 and depreciation on equipment was $653. That is, $2,814 that I don't have to pay income taxes on, and $365 less in personal income taxes. Of course I'm filing a schedule C.

I'll use my refund for something stupid, but I'm happy to get some of my own money back, because I choose to fill out one extra form, with details, every year.

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Author Topic: Do I have to file Schedule C for income from microstock? (Read 1315 times)

digipro

dbvirago

Uncle Pete

Sean Locke Photography

spike

cascoly

Sean Locke Photography

spike

spike

cascoly

spike

Mrblues101

Uncle Pete

cascoly

Sean Locke Photography

Diana Herrmann

spike

Uncle Pete

alan b traehern

spike

Uncle Pete

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