How to Report Patent Income on a Tax Return
- 1). Separate business income from other forms of income that are not business related. Patent income is considered taxable when a.) the inventor earns patent royalties for the right to reproduce a patented product and b.) the patent income is considered an essential and ongoing part of business operations.
- 2). Use Form 1040 and Schedule E, Supplemental Income and Loss, to report income. Income claimed on Schedule E not only includes earnings directly related to the royalty earned from a patent but also any income earned from the transfer of a patent. Include all income earned from patents on Line 4 of Schedule E. In some instances, you may be required to attach Schedule C to your return in lieu of the customary Schedule E. Taxpayers who will be required to attach Schedule C are generally self-employed persons or independent contractors. This could include independent inventors, artists and others who meet the guidelines as outlined in the instructions to Schedule C.
- 3). Mail your income tax return to the IRS or file online.
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