Pseudonym means, literally, fake name. Theodor Geisel had three. Lawrence Block had six. At last count Dean Koontz had eleven. Sam Clemens only used one, but then, he only needed one. Same thing with Stephen King.
There are a lot of reasons why a writer would choose to use a pen name.
Career complications. It might be problematic for a doctor or lawyer to write erotica, or even horror. If a writer’s work might cause complications in other aspects of his or her “real” life, they might choose to use a pen name. There’s nothing wrong with that at all.
Different genres. If a well-known author of children’s books decided to try something more risky, or horrifying, his or her fan base would probably be quite shocked to discover that they’ve bought something that wasn’t what they expected. If you’re used to seeing an author write about butterflies and kitty cats, you might not be prepared for a gore-soaked tale about legions of the blood-sucking undead. It would make sense to use a different name to publish such a different subject matter.
Mathematician Charles Dodgson wrote fantasy novels under the pen name Lewis Carroll, for example. Those are vastly different topics and is therefore understandable.
Keep in mind that I’m talking about dramatically different genres. If, for example, a self-supposed author who writes smut decides to write smut with a werewolf in it instead of a witch, that does not constitute a different genre. Smut is smut. No other names are needed, unless there are duplicitous intentions at play.
Another author already uses your name. This is what happened in my case. If you Google Jeanne Larson, you’ll find a whole lot of people that aren’t me, including a couple that write books about self-help and sundry other topics. So I use the initials JT with my own, real last name – Larson. Please note, I don’t have dots after the letters. It’s a little thing, but it bugs me when I see people writing it out that way. Especially if they’re trying to insult me in some way. I mean, if you’re going to diss me, at least use the right name to do it with.
Cultural or gender bias. Unfortunately, this does still exist. Some people, consciously or not, will think less of a book if they see a woman’s name on the cover. “They can write children’s books or recipes, but leave literary fiction to the men.” Rubbish. There’s a whole roster of female writers that would beg to differ. I’m one of them. But I go ahead and use the initials to avoid gender bias. I don’t want gender bias to factor into my work in any way, so I avoid it all together. I don’t hide who I am, and neither do many authors that don’t use their exact names.
Stephen King just wanted to know if people would buy his work without his own name on it. They did. A lot.
So, yes. There are a lot of legitimate reasons that authors do use pen names.
When is it NOT okay to use pen names? The short answer is: When it becomes fraud.
False information. If an author makes up fake identities, that’s fine, as long as the backstory is the same as the original author’s. It becomes fraud when someone not only makes up fake names, but also creates false backs-stories for them. When they create information that doesn’t exist or gives an alternym attributes or achievements they have not earned and do not have in reality, it’s not okay.
It’s fraud if an author gives a pen name experiences or areas of expertise which s/he does not possess. Someone who has not earned a degree in criminal justice can’t claim that a pen name has. An author that hasn’t learned to speak French cannot claim that an alt is a French scholar. A person who isn’t gay, a different ethnicity, older, younger, or abused in any way can not make claims of these characteristics for an alt. When this happens, it’s not only fraud, it’s offensive.
One example is an author who claims that she or one of her alts has been domestically abused in order to seem sympathetic to a reading audience, or even to raise money for a domestic abuse charity – only to keep the funds for herself. That’s not just criminal, it’s an insult to any real woman that has, in fact, been a victim of domestic abuse.
Don’t do it.
Identity theft. Tabetha (Hoover) Jones writes under multiple identities. She claims that it’s because each one of them represents different parts of her personality. That’s not okay. Pen names are about writing, not about dissociative personality disorders. If the alts exist so that each can write in different genres, that’s fine, like I said before. But when they’re all different names that write the exact same crap, then it’s very not okay. Especially if one of those alts is given the name of another, existing author.
One of Tabetha’s Alts is Ivy Sinclair. That would be fine and dandy, but there’s already an established author named Ivy Sinclair. Using the same name could (and probably should) get Tabetha sued by the existing author. Especially if the real Ivy Sinclair doesn’t write smut, and doesn’t want her name associated with that genre.
There’s a whole list of reasons an author makes up fake names. Their own name might be so tarnished, for example, that to use it would negatively impact upon their ability to generate sales. Their reputation precedes them.
To avoid Taxes.
To avoid breach of contract.
To avoid defamation suits.
Deceit in general.
To sum it up: if you see an author that uses one or more pen names, it’s entirely possible that it’s an innocent, professional act. If, however, you see someone that’s got different names under which they make fake claims, or display underhanded motives of any kind (including the use of a name another author already uses), chances are that that it’s not innocent or professional at all.
Don’t be that person. Keep it legit. Do your homework. Be professional.