Saturday, March 17, 2012

Tax Tips for Authors #3 – IRS Forms


by norriuke
So, now that you’ve identified your income and gathered all the information for your expenses, it’s time to start filling in the tax forms. But before you do that, have a nice sit down and a cup of coffee or a cappuccino. You've earned it.

Now for the disclaimer: As a reminder, everything you need to know about personal and business tax reporting is available on the IRS website ( My advice is not intended to replace that of your accountant; I hope simply to help you prepare for your annual tax filing.

Nice and relaxed? Good, let's get started:

Arrugh! All the letters! Do I use Schedule E or Schedule C?

Much debate rages over whether royalty income earned from book publishing is reportable on:

Schedule E – Supplemental Income and Loss (From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.), or

Schedule C – Profit or Loss from Business.

In fairness, it’s a confusing topic because royalty income is reported as, well, Royalties on your 1099-MISC.

Schedule C was my natural default for this one, but I wanted to make sure this was a good hunch, so I called the IRS. Surprisingly, the agent I talked to wasn’t an ogre. He was rather nice, in fact. My IRS agent, John, said:

If you are actively involved in the business of writing and intend to make a profit through your writing, complete Schedule C. You can claim all the expenses related to running your book writing and publishing business on Schedule C.
by dmpop

However, there are two times when an author would file a Schedule E:

  • if you are no longer actively engaged in the business of writing, but are still receiving royalties from your books, or
  • if you hold the royalty rights to a book you did not produce.

In both cases, the earnings from those books are considered passive. For example, after a writer dies, their books continue to sell and earn royalties. The person who inherits the rights to those royalties is not actively involved in the business of producing that product, therefore, the income is passively earned. Schedule E offers limited possibilities for deducting expenses related to earning passive income.

Schedule C, on the other hand, is designed to capture all the expenses related to running a sole proprietorship, which is what you, as an author, are until you form a partnership or a corporation in some form. Most of us will remain a sole proprietorship for our lifetimes.

by Henkster

What about the office in home expenses?

The IRS rules around deducting expenses related to a home office are documented in handy little tool called Publication 587. Ensure the six rules apply to you, and if they do, complete Form 8829 – Expenses for Business Use of Your Home.

Once you have the figure on Line 35, carry it to Line 30 on your Schedule C.

I’ve filled in my Schedule C or Schedule E, now, where do the numbers go?

The final figure from your Schedule C or Schedule E, whether a profit or loss, rolls to page one of the almighty Form 1040 – U.S. Individual Income Tax Return. There, it is added to your other sources of income to produce your Adjusted Gross Income figure, which is the bottom line on page one.

Make sense? Ask questions below, and I'll do my best to answer them.

Some helpful links:

Instructions for Form 1040

Be sure to check out other relevant posts:


  1. Thank you for sharing your expertise and knowledge with your right-brained author friends! I hope to hear more business-related advice from you, in addition to meeting those folks who just need killin!

  2. Thanks for stopping by, Alle. I hope you found something helpful here. See you in the Twitterverse!

  3. Any tips for a writer who switched horses mid-stream and needs to file cube-farm earnings in the same year as indie-earnings? I'm seriously flipped about trying to file for last year because of this.

    1. Hey Sharon-

      Do you mean that you received a W-2 from an employer (previous or current) and you have earnings as an indie author? I just want to be clear about your concern before I reply!


    2. Thanks, Sharon. From the perspective of the IRS, you simply have income from two sources to report. You'll complete the Form 1040 as you always do, and you'll also complete a Schedule C.

      For the Form 1040: Include the salary details from your W-2 on Line 7, and your federal income taxes withheld on Line 62. (Form 1040 is here:

      For the Schedule C: Report your earnings as an indie author on Line 1b (Gross Receipts or Sales Not Reported on Line 1a) and complete the rest of the Schedule to arrive at your Net Profit or Loss on Line 31. Carry that number to Line 12 on your Form 1040. (Schedule C is here:

      If you have a profit, you'll need to complete Schedule SE - see post #4 relating to Schedule SE, I hope to have it up on the blog today. (If you have a loss, you do not need to complete Schedule SE.) Carry the figure from Line 31 of Schedule C to Line 2 of Schedule SE and perform the calculations. (Schedule SE is here:

      You'll have two figures at the end:

      Self-Employment Tax (Line 5) - carry this number to Line 56 on your 1040.
      Deduction for Employer Part of Self-Employment Tax (Line 6) - carry this number to Line 27 on your 1040.

      Then do the rest of the math on your 1040 to figure out whether you owe the IRS, or they owe you. That's it.

      Let me know if you have further questions.


  4. In general, it pays for every writer to know about this matter. This gives you an idea of what you owe, you know. Most importantly, you can reduce your tax payments by taking deductions against your income.

    -->Winston Sutton

    1. Absolutely, Winston. Writing is a business, and we should be claiming all legitimate expenses against our earnings, just as any other businessperson would do.

      Thanks for stopping by and taking the time to comment.

  5. No matter how simple it is, relaxing, and sitting things through is a good point to remember when filing taxes. :) Being in a good disposition and taking your time will keep you from forgetting some details and important things to remember. In addition, make sure to double-check everything. Check the essential figures such as your income, expected refund, and Social Security numbers.

    Lauren Padilla

    1. Great advice, Lauren! Taking a breather from it all and then going back to double-check your figures is always a good idea. Thanks for taking the time to stop by and leave a comment.

  6. So we take writing-related expense deductions on Schedule C: Profit or loss form Business, right? I strongly suggest to consult a tax professional, at least the first year, whenever you feel that you’re in over your head on tax codes and processes. : )

    - Clemencia Summers -

    1. Yes, Clemencia - Schedule C it is! And your advice to contact an accountant or tax professional when you have questions is excellent. The IRS is also a good source of information, both via their website and through calling their agents.

      Thanks for stopping by and commenting. Have a happy new year.


  7. Gae-Lynn - fabulous post! Great info. I'm glad I found your blog!

    1. Hi Kathy-

      Thanks for clicking on over. I'm glad the information helped! See you in the twitterverse!