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How is software license income taxed? How about copyright sale funds?

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Intellectual Property

I am a software developer. I currently license the software, resulting in income to me. I might be selling the software copyright in the future, which would result in substantial income to me.

How is the software license income taxed?  How would the softare copyright sale income be taxed?  That is, what is the taxable character of (1) software licensing/royalty payments and (2) income from the sale of the software copyright?

1 Answers



  1. on Jan 16, 2012

    Regarding the software licensing – I believe that licensing/leasing the software would be considered ordinary income, and as a sole proprietor, that income would be reported in Schedule C of your individual return.

    In terms of the software sale income, what specifically would you be selling? By that I mean – is what you are selling considered to be a patent, a copyright, or a piece of tangible property?

    One other thing that your should be aware of – in Minnesota, the lease payment is probably subject to sales tax if the company that your are leasing it to is in Minnesota. I have attached the MN Sales Tax Fact sheet on Computer software. See http://taxes.state.mn.us/sales/documents/publications_fact_sheets_by_name_content_bat_1100086.pdf

    For matters like this, you are best served by working closely with a business attorney and CPA to minimize taxes. The money you spend on tax professionals will likely save you substantially more money in taxes.

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