Royalties

This royalty income is reported on Schedule C (more likely C-EZ and some would just throw it on Line 21 marked misc royalty income.)

It is generally subject to SE tax, but if the only Sch C income she has is $200, that's below the threshold for paying SE tax.

And legitimate expenses are deductible on Sch C.

Since her income is not a product of her own work, it is not subject to SE tax. For such a small amount it can be reported on Line 21 as Misc royalty income, or on Schedule E, where any expenses, such as agent fees if any, can be deducted. No SE.

Fancy games can cause trouble.

Only the royalties from her own work efforts are potenially subject to SE. So she should try to move expense payments into a year in which this income is more than the SE tax threshold.

That threshold is $400 of "Net Income from self Employment" which is a number found on Schedule SE Line 3 (from memory, see the actual schedule where it is called ne income from self employment.)

Dick,

If she has other businesses with say $300, then the total is $500 and it becomes subject to SE tax.

The book is "Surnames for Women: A Decision-Making Guide", Susan J. Kupper, Ph.D., MacFarland (1994). It's out of print so the royalties are from Copy Machine reprints of chapters by enlightened feminist academics.

For about four years, the royalties were between $600 to $900 and my argument that since this was the only book she ever wrote, the royalties were not subject to FICA prevailed with three tax professors.

Thank you. I was unaware.

And they usually do!

Dick

Unless they sign the preparer jurat on her return, they can afford to be quite aggressive.

I take a more conservative view: Since she spent a non-trivial amount of time and research to write this book, even the one book is the byproduct of considerable business work on her part, earned her some income, and was not a hobby. Sch C.

Had she chosen to hire one or more ghostwriters, and let them do all the work, there might be an argument that she did not have income from her own trade or business. I'd have to think about that scenario some more.

that sounds MORE like it is her trade or business.

That is an excellent point and its humor did not go unnoticed.

Sometimes a hobby might produce earned income. At the time I discussed this with tax professors, I had chapter and verse that a sole publication with no intention of even updating the book had royalties not subject to FICA. Unfortunately I do no have that information today.

Keep in mind that the main point of this thread was how to avoid FICA on inherited royalties. The book royalties was a comment.

Ghostwriters are in the trade or business of writing so there should be no question that their royalties are subject to FICA.

Dick

Ghostwriters generally get a flat fee. The issue is the royalties to the "author" (that is, the person whose name appears on the book).

Seth