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Leave in Tax Roayalties from creative for-profit nonbusiness acti

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Royalties from creative for-profit nonbusiness activities are reported on Schedule E. Advance royalties should be reported as income in the tax year received. What is the life of a copyright granted by the US government in 2008? The author's life plus 70 years What is the life of a patent issued by the U.S. government in 2008? 17 years A taxpayer's activity is clearly a hobby. She engages in the hobby in her home on a regular basis. In 2008, she received $500 in income from her hobby. Her hobby expenses consisted of the cost of materials, real estate tax and depreciation on equipment. In which order should she deduct her expenses? Real estate tax, materials, depreciation A taxpayer has a net loss from her business for 2008. The taxpayer had total business expenses of $500, owns only one business, uses cash method of accounting and does not deduct home office expenses. May taxpayer use Schedule C-EZ to report the business income and expenses? No
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

Royalties from creative for-profit nonbusiness activities are reported on Schedule E.

see for reference - IRS publication 525 - http://www.irs.gov/pub/irs-pdf/p525.pdf

You generally report royalties in Part I of Schedule E (Form 1040), Supplemental Income and Loss.

However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C or Schedule C-EZ (Form 1040).

 

Advance royalties should be reported as income in the tax year received.

- see in the same publication

Part of future production sold. If you own mineral property but sell part of the future production, you generally treat the money you receive from the buyer at the time of the sale as a loan from the buyer. Do not include it in your income or take depletion based on it.

When production begins, you include all the proceeds in your income, deduct all the production expenses, and deduct depletion from that amount to arrive at your taxable income from the property.

See RIA Federal Tax Handbook - Royalties

Royalties are included by cash basis taxpayers on receipt (actual or constructive), and by accrual basis taxpayers when their rights to then are fixed.

 

What is the life of a copyright granted by the US government in 2008? The author's life plus 70 years

see page 5 - http://www.copyright.gov/circs/circ1.pdf

A work that was created (fixed in tangible form for the first time) on or after January 1, 1978, is automatically protected from the moment of its creation and is ordinarily given a term enduring for the author’s life plus an additional 70 years after the author’s death.

For works made for hire, and for anonymous and pseudonymous works (unless the author’s identity is revealed in Copyright Office records), the duration of copyright will be 95 years from publication or 120 years from creation, whichever is shorter.

 

What is the life of a patent issued by the U.S. government in 2008? 17 years

see for reference - http://www.uspto.gov/web/offices/pac/mpep/documents/2700_2701.htm#sect2701

For applications filed on or after June 8, 1995, the patent term is 20 years from the filing date plus patent term extension.

For applications that were pending on and for patents that were still in force on June 8, 1995, the patent term is either 17 years from the issue date or 20 years from the filing date of the earliest U.S. application to which priority is claimed, the longer term applying.

 

A taxpayer's activity is clearly a hobby. She engages in the hobby in her home on a regular basis. In 2008, she received $500 in income from her hobby. Her hobby expenses consisted of the cost of materials, real estate tax and depreciation on equipment. In which order should she deduct her expenses? Real estate tax, materials, depreciation

you are correct - see for reference IRS publication 535 - Not-for-Profit Activities - http://www.irs.gov/pub/irs-pdf/p535.pdf

If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. If you are an individual, these deductions may be taken only if you itemize. These deductions may be taken on Schedule A (Form 1040).

Category 1. Deductions you can take for personal as well as for business activities are allowed in full. For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category.

Category 2. Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than your deductions under the first category. Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category.

Category 3. Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. Where more than one asset is involved, allocate depreciation and these other deductions proportionally.

 

A taxpayer has a net loss from her business for 2008. The taxpayer had total business expenses of $500, owns only one business, uses cash method of accounting and does not deduct home office expenses. May taxpayer use Schedule C-EZ to report the business income and expenses? No

I would say - yes - see for reference requirements in Part I - http://www.irs.gov/pub/irs-pdf/f1040sce.pdf

Who can use Schedule C-EZ? - If you have a profit from your business and:

  • your expenses are not greater than $5,000,
  • you have no employees,
  • you have no inventory, and
  • you are not using depreciation or deducting the cost of your home you can use Schedule C-EZ.

Let me know if you need any help.

 



Edited by LEV on 10/4/2009 at 4:42 AM EST
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22635
Experience: Taxes, Immigration, Labor Relations
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Expert:  Lev replied 4 years ago.

if the taxpayer has a loss he/she cannot use Schedule C-EZ - you are absolutely correct - it is clearly stated on the Schedule C-EZ at the requirements in Part I

I regret to confirm that I overlooked that the taxpayer has a net loss in your question.

Sorry for that and appreciate your understanding.

 

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