When can losses on royalties be reported?
I published a book last year, late enough that I didn't get a royalty check for it by the end of 2017. However, I did spend a small amount of money advertising the book. So, as far as 2017 goes, I lost money on the book to the amount of the advertising expenditure. I didn't spend anything else on the book.
I've reported this as a loss on a royalty property on Schedule E on my US 2017 federal tax return. However, the form says that not all losses can be counted, and are limited by the extent of my exposure. It points me to Form 6198.
Now, I've been doing my own taxes for a long time without too much trouble. Form 6198 is where I finally throw my hands up and say I have no idea what's going on. Can I count this loss, or do I need to forget about it?
Thank you.
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Authors should file a Schedule E for royalties after they are no longer in the business of writing, but active authors should be filing Schedule C, per the Instructions for Schedule E:
If you are in business as a self-employed writer, inventor, artist,
etc., report your royalty income and expenses on Schedule C or C-EZ
So for 2017 you'll report your losses on Schedule C, but for 2018 which form you file will depend on whether or not you are actively involved in the business of writing (regardless of whether it's related to this already published book). I would argue that if you have no expenses related to writing with the intention of earning money then you would file Schedule E, otherwise Schedule C.
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