Advanced Underwriting Consultants

Question of the Day – August 6

Ask the Experts!

Here’s the question of the day.

Question: My client’s only income comes from royalties from selling her book.  Is that compensation that makes her eligible to contribute to an IRA?

Answer: In most cases, probably yes, although it’s highly unclear.  Here’s an excerpt from Code Section 401:

 

    For purposes of this section, the term ''earned income''
    includes gains (other than any gain which is treated under any
    provision of this chapter as gain from the sale or exchange of
 
      a) capital and net earnings derived from the sale or
      other disposition of, the transfer of any interest in, or the
      licensing of the use of property (other than good will) by an
      individual whose personal efforts created such property.

How does a taxpayer distinguish between royalties associated with goodwill, and those simply associated with licensing property they’ve created?  The Code Section doesn’t say.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.