How Are Book Royalties Taxed for Authors?
Understand how the IRS views your writing—as a business or a hobby—and how this critical distinction shapes your tax obligations on royalty income.
Book royalties, the payments an author receives for the right to publish their work, are a primary source of income for many writers. The tax treatment of this income depends on whether the Internal Revenue Service (IRS) classifies the author’s writing activities as a business or a hobby. This distinction shapes the entire tax reporting process, from the forms used to the deductions that can be claimed.
Determining Your Tax Status: Business vs. Hobby
The IRS uses a set of factors to determine if an activity is a business or a hobby. To be considered a business, an author must engage in their writing with the primary purpose of generating income or profit. This is demonstrated through actions like maintaining complete and accurate books and records, having a separate bank account, and the amount of time and effort the author devotes to the activity.
An author’s expertise and the expectation of future profits also play a role in this determination. If an author has a history of making a profit from their writing in some years, it strengthens the case for it being a business. If the activity consistently results in losses, the IRS may classify it as a hobby, which severely limits the ability to deduct expenses.
Reporting Income and Claiming Deductions on Schedule C
For authors whose writing is a business, all income and expenses are reported on Schedule C, “Profit or Loss from Business.” Publishers send Form 1099-MISC to report royalty payments of $10 or more. Advances are taxed in the year they are received, not when they are earned out.
The gross royalty income is entered in Part I of Schedule C, while Part II is where an author deducts ordinary and necessary business expenses. Common deductions for authors include:
- Agent commissions
- Advertising and marketing costs
- Office supplies
- Software subscriptions
- Research-related travel
- Dues for professional associations
- Legal or professional fees
A significant deduction for many authors is the home office deduction. To qualify, a portion of the home must be used regularly and exclusively for the writing business. The deduction can be calculated using either the simplified method, a standard rate per square foot, or the actual expense method, which involves tracking a percentage of home expenses. The total of these deductions is subtracted from the gross income to arrive at the net profit or loss.
Calculating and Paying Self-Employment Tax
The net profit from Schedule C is subject to self-employment tax, which is the author’s contribution to Social Security and Medicare. For the 2025 tax year, the self-employment tax rate is 15.3%. This rate consists of 12.4% for Social Security on the first $176,100 of net earnings, and 2.9% for Medicare on all net earnings.
This tax is calculated on Schedule SE, “Self-Employment Tax.” The net profit from Schedule C is transferred to Schedule SE to determine the amount of tax owed. Authors can deduct one-half of their self-employment tax when calculating their adjusted gross income (AGI), as this is an adjustment to income available to all self-employed authors.
Meeting Estimated Tax Requirements
Authors who are treated as self-employed are typically required to pay estimated taxes throughout the year. This system applies to individuals who expect to owe at least $1,000 in tax for the year. Since taxes are not withheld from royalty payments as they are from an employee’s paycheck, authors must make these payments to cover their income and self-employment tax liability.
Estimated tax payments are generally made in four equal installments with due dates of April 15, June 15, September 15, and January 15 of the following year. The IRS Direct Pay system allows for online payments directly from a bank account. Another option is the Electronic Federal Tax Payment System (EFTPS), a free online service provided by the Treasury Department.
Authors can also mail a check or money order with Form 1040-ES, “Estimated Tax for Individuals.” Failure to pay enough tax by the due dates can result in an underpayment penalty, even if a refund is due when the annual tax return is filed.