How to deal with royalty payments to a parent, instead of the teenager
May 22nd, 2012 → 12:42 pm @ Carol
U.S. Tax Forms © by MoneyBlogNewz
InCreateSpace for minors? I discussed that CreateSpace (a division of Amazon that prints self-published books, CDs and DVDs), will not make royalty payment to minors (teenagers under age 18).
Instead CreateSpace will pay a parent, but not the teenager.
Here’s how to handle the situation:
1. A parent (say dad) agrees to accept the royalty payments in his name (even though his daughter wrote the book, her name is on it, and she deserves the cash from royalties!)
When dad gets a royalty check from CreateSpace, he gives the cash to his daughter.
2. Dad may get a tax form (1099MISC) at the end of the year showing how much CreateSpace paid him in royalties from his daughter’s book. If he doesn’t get the tax form from CreateSpace, he should still do step 3.
3. Dad MUST include this information on his tax return on Schedule C Profit or Loss from Business (even though he doesn’t technically have a business).
4. Dad should then include all the money he gave to his daughter on his tax return as a business expense. Put it on line 27 Other Expenses on the Schedule C with the explanation on page 2 of the form “Income assigned to Daughter’s name.” This is to explain to the IRS that dad accepted the money (income) on behalf of his daughter, but it’s really hers (assigned to her).
If he does it correctly, the bottom line on dad’s Schedule C will show a big , fat zero. There will be no profit from his business and no additional tax to pay. It all transferred to his daughter.
5. Daughter must also fill in a Schedule C on her own tax return. I cover that in my book, Micro Business for Teens: Money and Taxes ins Micro Business.
Micro Business for Teens: Money and Taxes in a Micro Business
Price $9.95
Read the Money and Taxes Table of Contents
View Money and Taxes Sample Pages
Carol Topp, CPA
