Tax Category Tax: calculations, VAT, self-employment tips and more

Taxes on Royalties

Income you earn for artistic work, the demonstration or display of your work and your performance are paid in the form of royalties.

There are two types of royalty income for federal internal revenue purposes, however -- self-employment income and participation in investments such as limited partnerships in gas and oil. These are reported differently for tax purposes.

Royalties on Federal Income Tax

Royalties from creative works, because they are considered self-employment, are reported on Schedule C with your Form 1040 tax return.

Royalties from investments in mineral activities, however, are reported on a Schedule E with your Form 1040. The varying reporting requirements reflect the primary difference in the two forms of income -- whether you have a direct personal involvement in the enterprise. You are personally involved in the case of self-employment income, but you have no direct involvement in the day-to-day operation of a limited partnership investment.

Book Royalties

Publishers pay book royalties to authors. To see the income tax treatment, look at the Obamas' 2009 income tax return, which has been posted online by the White House (see References). It shows a combined income of £3.6 million dollars in royalties on the two books he wrote: "The Audacity of Hope" and "Dreams from My Father." As you can see from their return, it was reported, like all book royalties, on a Schedule C with his 1040 tax return.

Mining Royalties

Many nations are presently reviewing the mining royalty rates they levy due to increased commodity prices and, hence, the growing profits of mining companies. These profits are occurring during the recovery from the world's global recession.

These conditions prompt nations worldwide to balance their desire to attract and keep mining businesses in their country vs. their desire to capitalise on the fat profits being earned by the resource companies. In June of 2011, this interest in reviewing royalty rates increases because of the many budget deficits faced by so many countries. Resource-rich countries such as Australia, Canada and China are more likely to increase taxation in this profit-rich environment.

Gold Royalties

In June of 2011, the outcome of presidential elections in Peru threatens increased royalties and taxes for Gold Fields Ltd., the fourth-largest producer of metal.

Like other countries, Peru is striving to increase its revenue in face of higher profits being made by gold companies. Higher metal profits make metal mining lucrative this year. In London, gold in the past year surged to £968 an ounce. This contributes to Gold Fields paying £15 million in royalties in the first quarter of 2011, which is a 40 per cent increase for them.