Royalty Income
"Royalties" can generally be described as payments you receive
for the use of your property, that are based in some way on the number
of units sold.
The two types of royalties most commonly encountered
are royalties for the use of copyrights, trademarks, and patents,
and royalties from the extraction of oil, gas, or minerals from your
property. However, other types of royalties are possible, such as
those paid for the use of a name, the sale of products using certain
proprietary processes, etc. In any case, income and deductions related
to your royalties are generally reported on Schedule E, Supplemental
Income and Loss.
However, if you are in business as a
self-employed artist, author, photographer or inventor, and the royalties
relate to a self-created copyright, trademark, or patent, you would
report the payments as part of your business income on Schedule C.
Similarly,
if you hold an operating oil, gas, or mineral interest in land, you
would report your gross income and expenses on Schedule C or C-EZ.
Numerous special rules apply to the ownership and taxation of mineral
property, and they're beyond the scope of this Guide. If you own
any investments of this nature, we recommend that you consult a qualified
tax professional for details.
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