I am an inventor whose product will soon be ready for a licensing agreement. I’d like to know the answer to this question as part of proper personal financial planning. Thank you.
How are taxes handled in regards to a royalty advance and future royalty payments?
17
Mar
v b
March 18, 2010 at 12:05 am
Royalty income is treated as ordinary income–subject to your regular tax rates.
ninasgramma
March 18, 2010 at 12:12 am
If you are in the business of inventing, the royalty payments are entered on Schedule C and are subject to self-employment taxes.
The net profit from your business is added to your other income and taxed as ordinary income. The net profit from your inventing business is also subject to self-employment taxes which are figured on Schedule SE.