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Discussion Forum Index --> Tax Questions --> SEP Plan - Royalty income
Jake (talk|edits) said:
| 22 March 2006
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| For whatever reason, our brilliant Congress treats royalties received by authors in a different manner. It is on Sch E, not Sch C. The upside - no FICA tax. However, can that net royalty income be the basis for a tax deferred contribution to a SEP? If not, to a Keogh? [Advantage to the SEP is I think it can be set up by the 2005 filing date. I believe it is too late to set up a Keogh for 2005.]
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Dennis (talk|edits) said:
| 22 March 2006
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| Your question shows a complete misunderstanding of the law.
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Jake (talk|edits) said:
| 22 March 2006
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| That's why I'm here! What did I misunderstand? Are book royalties not to be on Sch E? Is FICA tax owed?
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JR1 (talk|edits) said:
| 22 March 2006
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| I think he's suggesting what you really already know...by definition, they're not earned income, therefore not subject to SE nor available for retirement.
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Jake (talk|edits) said:
| 22 March 2006
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| Well, that doesn't make sense, but then who ever said tax law/regs had to make sense. The author's "work" is writing books and that is how he earns his living. He doesn't even get to participate in Social Security (of course that's really a plus) and then is not allowed to participate in other retirement plans. I suspected that the answer was "no" but it never hurts to get a 2nd or 3rd opinion. I have been surprised many times.
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Dennis (talk|edits) said:
| 22 March 2006
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| Author's royalties are subject to SE tax, with minor exceptions.
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JR1 (talk|edits) said:
| 22 March 2006
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| Oops. That makes more sense. I have no authors.
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MAPBUSINESS (talk|edits) said:
| 22 March 2006
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| see rev.rul. 68-498, I am not sure if there is any new reg. on this matter, but it seems that royalties from active authors are subject to SE
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Mtmckeecpa (talk|edits) said:
| 22 March 2006
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| I have book authors as clients and I drop it on Sch C, subject to SE. I have read articles on the web where others put book royalties on Sch E. My clients wrote the book.
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Dennis (talk|edits) said:
| 22 March 2006
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| The exceptions tend to be strange cases such as text book where one of the original authors didn't participate in writing the latest revision. Authors are engaged in business.
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