October 11, 2021 1:33 am

Crime Fiction Writer Liable for Self-Employment Tax

A best-selling crime fiction writer earned considerable income each year from her publisher. She reported all the income, but only treated a portion of it as trade or business income subject to self-employment tax. She argued that only the portion of the income related to the hours of work she put in for writing the books was trade or business income. The balance of the income—for promotional activities—was not. The Tax Court rejected her argument (Karen Slaughter, TC Memo 2019-65) and now an appellate court in an unpublished opinion has agreed with the Tax Court (CA-11, 8/3/21).

The court also rejected the argument that income from intangible assets—the rights to her name and likeness, her characters in previous books, and noncompetitive agreements—should not be subject to self-employment tax because they lacked nexus to the trade or business income. All of these intangible assets related to her continued success as an author.

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Tax Glossary

Mortgage interest

Fully deductible interest on up to two residences if acquisition debt secured by a home is $1 million or less, and home equity debt is $100,000 or less.

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