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 includes patents, copyrights, software, and other intangible property. Patents can include drugs, inventions, processes and procedures.
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).
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.
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.
This information is not intended to replace financial advice.
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