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Subject:  How do I treat royalty income? Date:  1/10/1999  2:26 PM
Author:  stockop Number:  7770 of 90110

For many years I owned a small business and have contributed some retirement funds in a SEP. In September of 1997 I incorporated taking on a partner. I licensed my old company name (trademarked and registered) and business techniques to the new corporation. Since then, neither my partner nor I have taken any income out of the corporation, but I do receive a monthly royalty as agreed to in the licensing agreement

My question is how do I treat this royalty payment, and how can I shelter some of this income? Is it considered earned income? I was told that somehow capital gains might come into play at some point. Since I am no longer self-employed I assume I will not be eligible to contribute to my SEP Plan. Could I open an IRA at this point if the royalty income is considered earned income? Any other ideas?

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