You make the call

Question: Robyn quit her job after signing with a publishing company to begin a business career writing books as an independent contractor, not just a one-time publication. She landed a lucrative publishing contract for a book series that spans several years, and the publishing company pays royalties to Robyn reportable on Form 1099-MISC, Miscellaneous Income. Plans for a home office were already underway when Robyn paused to consult with you for tax purposes. Is Robyn’s royalty income reportable on Schedule E, Supplemental Income and Loss?

Answer: No. Robyn’s royalty business income is reported on Schedule C, Profit or Loss from Business (Sole Proprietorship), not on Schedule E. Taxpayers who are in the normal course of their business of being a writer report their business income on Schedule C and are subject to self-employment (SE) tax. If Robyn had just a one-time publication with no other plans for future writing contracts and no profit motive, the argument could be made that this is not subject to SE taxes and could be reported on Schedule E. Robyn’s deductible expenses on Schedule C include qualified creative expenses and a home office deduction if all the home office requirements are met. Qualified creative expenses are those Robyn pays or incurs as a writer in her trade or business and which would be deductible for the tax year [§263A(h)(2)]. A writer’s qualified creative expenses are exempt from the general §263A uniform capitalization (UNICAP) rules applicable to book publishers.