Contributed by: PhillipB, FreeTaxUSA Agent, Tax Pro
What is royalty income?
Royalties are payments for using someone else's property (like their work or land) or giving the property owner part of the income from it (like mining their land). Royalty income can be:
- a payment to a patent owner for use of a patent.
- a payment to a writer or musician for each book sale or each public performance of a work.
- a payment made by a producer of minerals, oil, or natural gas to the owner of the land or the owner of the mineral rights.
Most US royalty income is earned from mineral, or oil and gas extraction by land or mineral rights owners. In most cases, royalty income is reported on Schedule E; but in some cases, you need to make sure you don’t need to report the income as self-employment income on Schedule C.
How do I report passive royalty income on a tax return?
Schedule E is where you report royalty income that is not from an active trade or business. This is true if you own land and receive royalties from minerals or oil and gas producers, or if you create intellectual property like creative works of art or technical inventions or innovations.
To report royalty income on Schedule E, follow this menu path: Income > Royalty Income (Schedule E).
How do I report royalty income from self-employment on a tax return?
Royalty income from active work in a trade or business should be reported on Schedule C as self-employment income.
For creators of intellectual property, you will need to review your active participation in the activity each year because you may keep earning royalties throughout your lifetime. If you stop creating intellectual property, your royalty income will change from self-employment income on Schedule C to passive income on Schedule E.
To report royalty income from self-employment, follow this menu path: Income > Business Income (Schedule C).
For more information about royalty income, see the current Schedule E instructions.
