Why We Wrote This Guide
Artists have multiple streams of income to keep track of and they all must be accounted for when doing taxes. The purpose of this guide is to help artists understand whether or not it is important to report monies earned by royalties on their taxes.
Who Is This Guide For
- All creators that are earning royalties from their work.
- Anyone looking to learn more about artist finances.
- Do I Need to Report My Royalties?
- How Do I Report My Royalties?
- Why Is It Important To Report My Royalties?
Do I Need to Report My Royalties
As an artist, you may be wondering if you should report the money you earned through royalties on your taxes. The short answer is -- Yes, any money you have earned through royalties over ten dollars should be reported on your taxes.
As a songwriter, you may need to report royalties earned from your publisher or administrator and PRO.
As a musician, producer, or artist, you may need to report royalties earned from your record label, record distributor, and sound exchange.
As a songwriter and artist, you may need to report royalties earned from your PRO, publisher, and record label. It depends on how you are earning royalties and how you have decided to enter the industry -- whether that be as an artist with a major label, as a songwriter with a publisher and PRO, as an artist signed with an independent label with control over publishing, as well as many other combinations.
How Do I Report My Royalties?
Every entity that distributes royalties to you should be giving you a 1099-MISC form that you will use to report your royalties on your taxes. A 1099-MISC form essentially records the amount of royalties you have received from any particular entity. You will use the amount recorded on these 1099-MISC forms to transfer the correct amount of earnings to your 1040 tax form. Most artists will file their reported royalty earnings on Schedule C due to the fact that artists are considered self-employed and the income earned by way of royalties is a part of your regular earnings. Royalties from one-time earnings like work you may do outside of your music career would be filed as Schedule E since it is considered supplemental income. For example, if you were to work on a novel outside of your music career and it was published and sold you would earn royalties. Since you are not recognized in the eyes of the government as a self-employed writer the royalties earned from book sales would be considered supplemental income and therefore they would need to be filed as Schedule E.
Once the information recorded on the 1099-MISC forms you’ve collected is transferred to your 1040 form you’ve finished reporting your royalties on your taxes.
Why Is It Important To Report My Royalties?
Royalties are income, therefore the federal government expects you to report them on your taxes. It is important to report your royalties for the same reason it is important to report any income you make as an American citizen. Failure to do so could result in discrepancies with your tax filing and alert the government that you’re making an effort to evade taxes so it is very important to stay on top of your royalty earnings as an artist.
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