A NINC member recently inquired about tax reporting for collaborative works. With new publishing opportunities
these days, more writers are engaging in joint efforts with other authors to maximize their earnings
potential. Collaborative efforts can be profitable. Unfortunately, tax reporting for collaborations can be a
Collaboration vs. Partnership
Although the relationship between collaborators may be commonly referred to as a “partnership,” in
many collaborations a partnership does not exist for tax purposes. The IRS defines a partnership as a relationship
between two or more persons who join to carry on a trade or business, with each person contributing
money, property, labor, or skill and each expecting to share in the profits and losses of the business,
whether or not a formal partnership agreement is made. However the IRS also states that “. . . a joint undertaking
merely to share expenses is not a partnership. For example, co-ownership of property maintained and
rented or leased is not a partnership unless the co-owners provide services to the tenants.” (IRS Publication
541 – Partnerships)
In my opinion, because collaborators share ownership in an intellectual property and earn income in the
form of royalties from the exploitation of the copyright rather than from carrying on an active trade or business,
a collaboration on a book is similar to co-ownership of other types of property, such as rental real estate.
Therefore, no partnership tax return should be required. That’s good news because partnership returns
are darn complicated!
So how would collaborators report their income and expenses?
In a perfect world, each party to a collaboration would be paid his or her share of earnings directly by
third-party booksellers who would issue each author a 1099-MISC reporting his or her exact share at year
end. In this perfect world, each party would pay his or her share of expenses directly to third party vendors
and receive an original receipt for the expenses. Under this best-case scenario, tax reporting and recordkeeping
would be easy.
Unfortunately, most collaborative efforts are not this simple. Often one collaborator deals directly with
the booksellers or vendors, and the collaborators must settle up the funds among themselves. For instance,
in the member’s case, the member’s collaborator will be paid the full royalties from Amazon under his or her
own account and will then pay the member her agreed-upon share. Presumably the collaborators also have
an expense reimbursement situation in which each party will reimburse the other for his or her share of expenses
that were paid by the other.
Execute a Collaboration Contract
When writers collaborate on a project, it’s a good idea to have a contract clearly establishing the terms.
The contract should state what percentage of receipts each collaborator is entitled to, as well as what
percentage of expenses each collaborator will bear. For example, in a two-party collaboration in which income
and expenses will be shared equally, the contract should stipulate that each party is entitled to 50 percent
of the gross receipts and must bear 50 percent of expenses.
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