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Tax tips for authors: Learn how your agent is reporting your writing income

One of the things that can affect your tax returns is the income that you report from writing in the form of royalties, advances, etc. Many of you will have literary agents and those agents will report to you what you’ve earned at the end of a year on a 1099. While the IRS says that agencies are supposed to report to their clients the gross income amount that was received, most agencies report on the net basis, and the IRS doesn’t seem to be aware of, or care about that. But as an author, you really need to know on what basis your agent is reporting income because it could potentially affect your tax return.

For example, if you earned $100,000 and the agent is reporting $100,000 on a 1099, then they did it properly–reporting on the gross income–and you will need to quantify the commissions that you paid and any other expenses that you had or that may have been withheld from you to ensure that you take those deductions on your tax return. Most authors report their taxes on a Schedule C if they’re unincorporated, so that’s how you would do it.

If they’re reporting on the net, and you earned $100,000, and they took their 15% commission, they will give you a 1099 for $85,000. You would then report the $85,000 on your tax return and would not take a tax deduction on commissions paid to your agent because they’ve already done that for you on the 1099.

Overall, it’s a good idea to ask your agent to provide detailed support for the 1099 they sent you. This will tell you the commissions they took and how the 1099 was reported, as well as reveal the foreign taxes they have taken out. The topic of foreign taxes is discussed in the second installment in this series, “Understand foreign taxes, tax credit and tax certification.”

Robert M. Pesce, Partner, Marcum LLP, provides significant tax saving strategies and business advice that enables his clients to become more profitable and efficient.