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Old 02-14-2012, 02:40 PM
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Passive Income as a Sole Prop.

I consider myself a sole proprietor. In recent years past I had expenses and income related to the creation of some personal websites. I still own the websites, however I do not perform any work related to them - I continue to earn income similar to royalties. This is my sole source of income (well, except for my husband's SSD income - we file jointly). In my opinion, this is passive income. I know I am still responsible for regular income taxes on the income earned from my websites, but do I have to pay self employment taxes for the income earned from these websites?

Thank you for any assistance.



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Old 02-14-2012, 11:39 PM
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“ but do I have to pay self employment taxes for the income earned from these websites?”---->I think so;as you can see, since you receive royalty payments, no one to pays theER’s share of these taxes. Royalties are self-employment income and generally subject to taxes( royalties are reported on Sch E of 1040 line 3b and on 1040 line 17 UNLESS you are in business as a self-employed artist, author, photographer or inventor, and the royalties relate to a self-created copyright, trademark, or patent or etc.). I guess you can report your royalty income on Sch C line 1b as long as the amount on Sch C line 29/31 is $400 or exceeds $400, you need to file Sch C and a long as the amount on Sch SE line 4 is ALSO $400 or exceeds $400 , you are subject to SECA Taxes. Whether or not your royalty income is subject to self-employment taxes depends on your current activities. If you are active in the profession related to the royalties you receive, the money will be considered compensation subject to self-employment taxes. ALSO, as you are filing as a sole proprietor and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.However, you do not have to pay estimated tax for the current year if you had no tax liability for the prior year ;you were a U.S. citizen or resident for the whole year ;your prior tax year covered a 12 month period.



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