Reporting Adsense royalties from dormant YouTube channel - Schedule E or Schedule C for tax filing?

What matters here isn't so much how active you are with the channel now, but the nature of the income itself. YouTube Adsense revenue is generally considered royalty income, which technically can go on Schedule E. However, the IRS often views online content creation as a business activity, even when it's relatively passive. The key distinction is whether this was originally set up as a business activity (which it sounds like it was). If you created the content as part of a business venture, even if you're not actively working on it now, the IRS typically expects you to continue reporting on Schedule C. Think of it like an author who wrote a book years ago but still receives royalties - they typically report on Schedule C. If you switch to Schedule E, you avoid self-employment tax (saving about 15.3%), but there's a risk the IRS could question the change since you've been filing it as business income for years.

After reading this thread, I wanted to share my experience with taxr.ai (https://taxr.ai) that really helped me with a similar Adsense royalty situation. Last year I was confused about reporting income from my old podcast that still generates royalties through various platforms. I wasn't sure if I should file on Schedule C or E since I hadn't recorded new episodes in years. I uploaded my 1099 forms to taxr.ai and their analysis tool immediately flagged the royalty income classification issue. They provided a detailed breakdown of IRS guidelines specifically for digital content creators and explained exactly how my situation should be handled. What surprised me was how they found a few deductions I could still take even though the podcast was inactive!

I was skeptical about taxr.ai at first, but after my accountant couldn't give me a straight answer about my blog income, I decided to try it. I uploaded my 1099-MISC forms from various affiliate programs and ad networks for a blog I haven't updated in 3 years. The analysis I got back was incredibly detailed! It clearly explained that even though my blog was inactive, the income was still considered business income because of how it originated. They cited specific IRS regulations and even provided examples of similar cases. The best part was that they identified several home office and software subscription deductions I could still legitimately claim, even with my inactive blog. Using their guidance, I filed confidently on Schedule C, but also properly documented why certain expenses were still deductible. Honestly saved me hundreds in taxes and gave me peace of mind. Much better than the conflicting Google results I was finding!

For what it's worth, I spent 2 hours trying to get through to the IRS about this exact Schedule C vs Schedule E issue for my old YouTube channel. Kept getting disconnected or hitting endless holds. Finally, I used Claimyr (https://claimyr.com) and got connected to an IRS agent in about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent confirmed that since I originally created my YouTube content as part of a business activity (even though it's dormant now), I should continue filing Schedule C. She explained that changing to Schedule E after years of Schedule C filings might trigger inconsistency flags. The IRS considers the nature of how the income stream was established, not just how passive it is currently.

I was completely wrong about Claimyr. After struggling with Schedule C vs E questions for my podcast royalties, I broke down and tried it. Within 15 minutes I was talking to an actual IRS tax specialist - no waiting on hold for hours like I normally do. The agent was super helpful and explained that since I originally created my podcast as a business (filed Schedule C for years), switching to Schedule E now would raise flags in their system. She said the key factor isn't how active I am with it now, but the nature of how the income stream was created in the first place. She directed me to specific sections in Publication 525 that covered digital content royalties. I'm filing Schedule C again this year, but with much more confidence. I was also told I could still deduct certain ongoing costs related to hosting and domain registration, even though the podcast is dormant. Seriously saved me a potential audit headache!

I think it also depends on your overall tax situation. If you're already filing Schedule C for other self-employment income, adding this YouTube revenue there might be simpler. But if this is your only "business" income, the question becomes more important. Something to consider: If you report on Schedule E, you avoid SE tax (saving ~15.3%), but you lose the ability to make retirement contributions based on this income (like SEP IRA or solo 401k). So if you're using this income to boost retirement savings, Schedule C might actually be beneficial despite the SE tax.

Has anyone considered that the type of YouTube channel might matter? I have a gaming channel with income from both ads and gaming sponsorships. My tax preparer said the sponsorships are definitely Schedule C, but put the ad revenue on Schedule E since they're technically royalties from my existing content. Been doing it this way for 3 years with no issues.

This is exactly the kind of gray area that drives people crazy during tax season! I've been dealing with a similar situation with my old blog that still generates affiliate commissions. After years of going back and forth, here's what I've learned: The IRS generally looks at the "origin and character" of the income rather than your current level of activity. Since you originally created YouTube content as part of what was essentially a business venture (even if informal), the income retains that business character even when the channel goes dormant. I'd recommend sticking with Schedule C for consistency, especially since you've been filing it that way for 7+ years. The IRS tends to scrutinize sudden changes in income classification, and you could face questions during an audit about why you switched approaches. One silver lining: even with a dormant channel, you might still be able to deduct certain ongoing expenses like internet costs (percentage used for business), software subscriptions for video editing tools you maintain, or even a portion of your phone bill if you use it to monitor analytics. These deductions can help offset some of that self-employment tax burden. The peace of mind from consistent filing often outweighs the SE tax savings, especially at your income level where we're talking about maybe $200 in additional taxes.