NCWA blog welcomes Gary Hensley as our new guest columnist! On the first Monday of each month, Gary will be giving us great advice regarding the business side of writing.
As an independent writer, illustrator, author, editor or researcher filing a Schedule C as a sole proprietor, you are likely to receive one or more Form 1099-MISC’s from your customers/clients (those that paid you $600 or more during 2012) shortly after the year-end. You also will need to prepare and issue this form to any subcontractor (if they are unincorporated) you paid $600 or more during the year for services received and rents paid for the use of business property.
This form is also used to report royalties paid to authors of $10 or more (see below). Copies of the form are sent to the IRS and will be matched to the recipient’s tax return to check reporting compliance. If your gross receipts reported on Schedule C are less than the total amount of 1099-MISC income reported to the IRS, you can expect a letter of inquiry.
Box 2 of the form is used to report royalty payments from intangible property such as patents, copyrights, trade names, and trademarks. The reporting threshhold here is $10 or more. Publishers are required to report gross royalties (before reduction for fees, commissions, or expenses) paid directly to an author or literary agent, unless the agent is a corporation. The literary agent (whether or not a corporation) that receives the royalty payment on behalf of the author must report the gross amount of royalty payments to the author on Form 1099-MISC (whether or not the publisher reported the payment to the agent on its Form 1099-MISC).
Your Reporting Requirements
You are required to file Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid at least $600 in the course of your trade or business. You report the amount paid in box 7 of the form. Box 7 is labeled “Nonemployee Compensation.” According to the IRS, if the following four conditions are met, you must report a payment as nonemployee compensation:
- You made the payment to someone who is not your employee;
- You made the payment for services in the course of your trade or business;
- You made the payment to an individual, partnership, estate, or, in some cases, a corporation; and
- You made payments to the payee of at least $600 during the year.
Click here to read the rest of Gary’s post on his blog, “Tax Solutions for Writers: Helping you keep more of your writing income.”
Gary A. Hensley is a 35-year veteran in accounting, auditing, and federal taxation including employment as a Revenue Agent with the IRS (2005-2011). He has been a workshop instructor on the business side of writing. Publications include: Writer’s Digest, Christian Communicator, and Writers Journal. Gary writes at: www.taxsolutionsforwriters.com.