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

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

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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. 

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