Can I treat book royalties as short-term capital gains to offset investment losses?

by Rosemary Lamaestra, CPA, CFE | Jul 11, 2019

I have written a book to be published later this year from which I will earn royalties. The normal treatment of royalties is ordinary income. Is there any way to structure things so that I can treat the royalties as short-term capital gains to offset investment losses? 

Regarding the royalties to be received for the book you have written, you do not mention if you have set up a business. If you have set up a business (either single-member limited liability company or sole proprietor), you will most likely receive a 1099-MISC, and you must record the income on your business tax form (Schedule C). Likewise, you will be able to deduct any expenses you incur in the writing of your book as a deduction. 

When you mention “investment losses,” it is unclear if you are referring to the monies you have invested in writing the book, which would be expenses in the ordinary course of a business, or if you are referring to other investment losses, such as capital losses. Royalties do not offset capital losses. You should seek professional assistance to properly structure your business.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Rosemary Lamaestra, CPA, CFE, is a manager with RLB Accountants in Allentown, Pa. 

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
Financial FAQs

Search the most frequently asked finance and accounting questions and read the responses from PICPA members. Always consult a CPA before taking action.