Tax tips for authors

Textbook authors are subject to self-employment taxes on their authoring income, said Paul Rosenzweig, a CPA and consultant with Royalty Review Service LLC. "All advances, all grants and all royalties received are reportable on tax returns," he says.

Royalty income should get reported on Schedule C or C-EZ, not on Schedule E, said Rosenzweig. "Although Schedule E has a royalties received line, author royalties don't belong there," he said. "The royalties income line on Schedule E is for reporting oil, gas & coal production royalties, inherited royalties, and for retired authors who are no longer writing but still collecting royalties on past books."

Rosenzweig said that once authors are self-employed and filing a Schedule C, numerous opportunities open up. One of those is deducting a percentage of expenses for the business use of their home, he said (emphasizing that authors should be managing their affairs with a tax professional): "Authors can depreciate a percentage of their living space that is used for their office. They can also deduct a percentage of their homeowner's insurance, utilities, phone, repairs and maintenance, gardening, homeowner dues, etc., equal to the percentage of their office space. The larger the area of your office space, the greater the deduction. Move your office into the largest spare room in your home. You can use two rooms as offices (for example, one for working, and one for storage)."

Another area authors should know about when filing a Schedule C or C-EZ, said Rosenzweig, is the benefits of setting up a SEP IRA (Self Employed Pension Individual Retirement Account): "If your authoring income is 'extra' income and your employer's 401-K or other tax deferred arrangement is not adequate for your needs, you can set up a SEP IRA that can lower your taxes. Additionally, there are other retirement plans available to self employed authors that may require the services of an actuary, but yield even greater retirement plan contributions and tax savings."