“Royalties from writing books go on Schedule C. And they are subject to self-employment tax.”
They MAY go on this schedule, or must? Unless Obama wrote off heaps of illegitimate expenses associated with generating these royalties, it seems to me that because of the SE tax, he ended up paying more in taxes than if he’d declared the identical royalty income and offsetting expenses on Schedule E.
But given the nature of the royalties, I can’t tell whether Obama made a choice that benefited Uncle Sam at his own expense or whether he had no choice in the matter. Given his historical pattern of charitable giving, the first possibility doesn’t seem that likely IMHO.
Royalties from writing book must go on Schedule C and not on Schedule E. Royalties from land used to produce minerals such as oil and gas go on Schedule E.
I have researched this issue because I have written books on which I received royalties (such as Tax Strategies for the Self-Employed which is published by CCH Incorporated). At his salary level, he maxed out on Social Security tax. Therefore, the only self-employment tax he would pay is the Medicare tax, which has a nominal rate of 2.9 percent. He gets to deduct half of his self-employment tax in calculating his adjusted gross income.
Some years ago I owned stock in an oil and gas limited partnership and IIRC I received a tax notice with instructions to put the income on Schedule E. I think Schedule E is probably for passive royalties that you get from things like owning rights to oil and gas, land, etc.
Authors get royalties in lieu of a salary for their active labor. That is why I suspect the IRS deemed it the equivalent of self-employed income.