How to avoid estimated tax penalties
How to avoid estimated tax penalties

What IRS Forms Are Right for Freelance Writers?


The final part of tax guru Julian Block’s freelancer write-off series focuses around questions about IRS forms from a freelance book writer. Some basics on just what write-offs the IRS permits freelance writers to claim and how quickly, IRS examiners get their marching orders from Code Section 162, a provision that authorizes deductions for business expenses only when they’re “ordinary and necessary.” 

Aug 26th 2021
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Your freelance writer clients will always have write-off questions for you. As such, here are some pointed answers in the final article in this series on the correct forms to use for royalty reporting.

A recent question came in from a freelance writer, claiming that some of her fellow self-employed writers tell her that she’s woefully behind the times on what attachments should accompany her Form 1040. Specifically, she was told that she should no longer use the 1040’s Schedule C to report her book and photo royalties and lose more than required to the IRS. Moreover, she was advised to report those earnings on the Schedule E. The claim is that’s all it takes to sidestep the 15.3 percent self-employment tax, a levy comprised of the 2.9 percent Medicare and 12.4 percent Social Security taxes. So, is this true?

The answer is that IRS revenue agents and office auditors look unkindly on writers, photographers, artists and other self-employed individuals who try to thwart self-employment taxes. Perhaps we have a case of semantics here.

Sure, the IRS uses the word “royalties” on Schedule E. And sure, the agency’s definition of royalties includes payments for intangible properties––for example, books and artistic works, which would include photos.  The snag is IRS insistence that writers use only Schedule C to report royalties paid to them for their creative efforts, making such income subject to self-employment taxes. It’s verboten, warns the IRS, for them to use Schedule E. 

When does the IRS say it’s okay for taxpayers to report royalties on Schedule E? When, for instance, the recipients are purchasers or inheritors of copyrights on books, photos and the like that they didn’t create. So, freelance book writers, don’t mess things up. Use Schedule E only to report royalties received from, say, extractors of coal or gas. 

Be mindful of what happens when 1040 time rolls around and publishers send 1099 information forms that show advances, royalties and other payments related to your books. The law requires them to send copies to the IRS.

A final reminder, years of underfunding have compelled an understaffed IRS to significantly scale back its enforcement efforts. But, it hasn’t wizened into a toothless tiger unable to confirm the obvious––those 1099s weren’t sent by coal extractors, they were sent by your publishers.

Additional articlesA reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (over 400 and counting).