What Are Royalties on Schedule E?

by Kevin Boone ; Updated July 27, 2017

Royalties are payments made by a third party to a person or entity (such as a business) that holds a property, patent, or copyright for the right to use that property. Such property includes literary and artistic works, intellectual property, buildings and natural resources such as oil fields.

Literary and Artistic Works

Literary works include books, motion pictures, songs and TV shows. Artistic works include paintings, drawings and images (both digital and drawn).

Intellectual Property

Intellectual property includes patents, copyrights, software, and other intangible property. Patents can include drugs, inventions, processes and procedures.

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Natural Resources

Royalties are paid to property owners by companies to extract resources from the property owner's land. Natural resources include coal, minerals, oil, and natural gas. These royalties are paid by the unit (barrels, tons and cubic feet, for example).

Rent

Rental income occurs when a someone pays to use a person's or entity's assets for their own use. This includes rent paid for buildings, apartments or equipment.

Tax Deductions

Deductible expenses include travel expenses, equipment depreciation, state and local taxes, licenses, management fees, advertising, maintenance, insurance, and office supplies. These expenses must be ordinary and necessary to maintain the royalties, and restrictions may apply for some of these expenses.

Disclaimer

This information is not intended to replace financial advice.

About the Author

Kevin Boone is a current student at Chattanooga College and graduated from Pellissippi State in 2000 with an associate degree in electrical engineering. He has written safety-related procedures and documents for organizing power system components and holds his A+ Certification for Computers.

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