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IRS criminal investigations

Self-Employment Tax Plot Unraveled by Court


A recent court case revolved around the issue of whether an author's income from marketing and licensing endeavors should be treated as self-employment income for tax purposes. 

Oct 5th 2021
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In a new case decided by the Eleventh Circuit Court of Appeals, Slaughter, CA-11 No. 20-10786, 8/3/21, a famous author of crime novels was held liable for underreported self-employment income.

Generally, a self-employed individual must pay federal income tax as well as self-employment tax on the net self-employment income received during the year. Net self-employment income is essentially your gross income from your business activities less deductible business expenses.

This income is subject to income tax at ordinary income rates. The self-employment tax rate is double the regular payroll tax rate for employees—15.3% instead of 7.65%—but half of the tax is deductible.

Facts of the new case: The taxpayer is a best-selling author who lives in Georgia. She is known for her gritty crime fiction novels.

In 2010, the taxpayer received more than $5.4 million from publishing contracts after deducting her agent’s fees and expenses. However, on her income tax return for that year, she reported only $875,000 as gross business income.

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Replies (2)

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By Lewis C. Taishoff
Oct 7th 2021 10:46 EDT

As you say, this decision is no surprise. The interesting part is the "brand name" gambit, keeping taxpayer as individual, rather that using the played-out single-stockholder Sub S or single-member LLC dodge.

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professional picture of Candace Dixon
By Candace Dixon
Dec 15th 2021 13:14 EST

Very interesting!!

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