Well known author owes $190K in self-employment tax, 11TH CIRC confirms

August 9, 2021 by TxSEA
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When Karin Slaughter first signed her contract in 1999, she was not a “brand author” and her royalty income was modest.
She later began working on her brand. She hired a media coach, met with publishers, agents, media outlets, and
established a good relationship with booksellers. She used social media, websites, and newsletters to connect with her
readers. Now as a “brand author”, her advances has grown substantially, yet the amount of time she spends on writing a
book stayed about the same. Ms. Slaughter attributes her increase in earnings to building her brand and not her writing.
When she prepared her Form 1040, she reported her advances and royalties to Schedule E. She subtracted all the income
related to the trade or business of writing from Schedule E and reported it on Schedule C using a calendar-based
approach.

The Tax Court ruled the earnings from Ms. Slaughter’s brand were subject to self-employment tax given that she engaged
in developing her brand with continuity and regularity form the primary purpose of income and profit. Her brand and her
writing combined were monetized, first by selling books and second, by providing the leverage to negotiate for higher
advances and royalty rates.

Having all the income subject to self-employment tax was further influenced by the manner in with she deducted her
expenses. Ms. Slaughter lived in Georgia but rented an apartment in New York City to help ease with meetings and
conferences with agents, booksellers, and publishers. She then wrote the rent for her apartment and the advertising costs
on Schedule C even though she stated the income was purely related to the writing. The Court believed that if the
expenses related to brand were written off on Schedule C, then the income derived from the brand should be reported on
Schedule C, subject to self-employment tax.

The way expenses are reported against income impact both income and self-employment tax.

1 Slaughter v Commissioner, T.C. Memo 2019-65 (June 2019

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