If you are an author – if you are lucky – you get royalties. You report them to the IRS on Schedule C as self employed income which is subject to social security tax. Some publishers consider all your income for them royalties if that money is paid as an advance against future profits on your books.

If you get royalties from an oil well, you report your royalty income on Schedule E and do not pay social security taxes on this income.

I just got a nasty-gram from the IRS. They claim I did not report my royalty income, and owe them tax payment on an additional $15,000. Apparently, because I did not report the income on Schedule E. Where royalty income for authors does not belong.

I look at my Schedule C, add up the numbers and not only show that I reported every penny the IRS says I took in – including all the royalties on Schedule C as is proper – but I show I reported about $5,000 in additional income. Because I am the kind of girl who actually does report the money I make on art sales.

To make matters more exciting, they are trying to tax me on the withdrawals on the principle from Money Market Funds and other accounts, not on the profits.

You don’t pay tax on the principle in your savings, you pay it on the interest. If you buy a CD, you pay on the profit, not on the investment. So, I withdrew $7500, made a profit of $300, and they are trying to tax me on the $7500. On which I already paid tax when I earned the income.

I had heard horror stories that the IRS was going after everyone and everything they could grab, because the economy sucks and our government needs cash. When they are reduced to going after artists, we have truly hit rock bottom.

If the IRS wants to start taxing creator royalty income as social security tax free income, then I am all for it. I would like a refund on the last few decades of payments, please.

I’m sure I’ll be able to straighten this out, but in the meantime I am deeply annoyed.

Maybe I should send them a bill for my time.

UPDATED: Just spoke to very polite lady at the IRS, and the problem looks like it was cleared up easy as pie. Definitely the Schedule E versus Schedule C snafu. All the IRS sees is ROYALTIES on your income forms from your clients. They don’t know from jack where that Schedule C money comes from, so they were looking for Schedule E royalties. Except there aren’t any because I do not own any oil wells.

Also no problem with the Money Market income snafu.

I will breathe easier when they review all my supporting paperwork, but for now, I am going to get some ice cream.