Specifically:
Does the author have to collect sales tax when they directly sell their books?
How do they report royalty income on their federal and state income tax returns?
Does the author have to get a business license or state tax ID number in order to collect sales taxes?
Can I "write-off" my expenditures as business expenses?
The short answer to all of this is this: I am in no way qualified to give anyone tax advice. I'm not an accountant, and after taking two accounting courses in college, I decided I would never want to be an accountant.
However, smarter people than I have already written about this subject. I'll condense some of the info here, and include links to the complete articles so you can look them over yourself.
1. Does the author have to collect sales taxes when they directly resell their books? This really depends upon the state in which you are selling your books. Each state is different, and in fact, different counties within those states can have differing sales tax rates. The short answer is "yes, if your state has a sales tax, you'll need to pay the tax for the books you sell." You can either add that cost to the sales price of your books, or just take a smaller portion of the sale and pay the sales tax yourself.
2. How do I report royalty income on my income tax returns? Basically, royalties are treated like income. Whenever I have done some freelance work in the past, I always had to report that as self-employment income, and there is a form for that. If your royalty income is very small there are certain conditions under which you can claim your writing is a "hobby," but for the most part, Uncle Sam wants his cut of your royalties.
3. Does the author have to get a business license or state tax ID number to collect sales taxes?
Again, depending upon the state where you are located, you may need to get some type of license to collect the sales tax, and you might event realize some tax advantages to treating your writing like your own small business and get a business license. This is something which you will REALLY want to run by an accountant (again, that is so not me).
4. Can I write-off my writing expenditures as business expenses? There may be some expenses that you can write-off, especially if you are working out of a home office and your book is providing you with income. As long as you can prove you are actively pursuing writing as a career, you may have some deductions at your disposal.
Disclaimer: Did I mention I'm not an accountant? OK, good! Seriously, this article is for informational purposes only, and should not be construed as actual tax advice. If you are serious about being a professional author and pursuing writing as a career, find yourself a great accountant!
Other articles I recommend (seriously, you should really read these):
Simple Record Keeping and Tax Deductions for Authors
The Issue of Sales Tax on Books
Taxes and Finances for Writers
4 comments:
Thanks for the post, Terry. My college education was paid for by my grandfather and he decided early on, I was going into accounting. I never liked it either... lol
Alas, my dream of going into the arts came true with my first published work via Tate Publishing. Never give up on your dreams, people!
This article gave me ideas on questions I need to ask my accountant. Thanks for the information!
Although I am neither an accountant nor a seasoned author (I have published two books in the past 3 years, but am still finding my wings), I cannot stress enough the importance of new authors investigating all the ins and outs of the tax debate. I learned the hard way that, at least in the state of TN, you most assuredly do have to pay sales & use tax, except on interstate sales where delivery is not taken in TN. I only read a portion of the tax info on our state's website and inadvertently didn't charge or pay sales tax the first quarter I sold books, which was a big sales quarter for me. It took months to straighten our the mess! Now I make it a point to share that experience with new authors in my area so they don't make the same painful mistake! Bottom line: do your homework and realize that even a good thing (your writing) is going to cost you more than just a labor of love.
Good advice, Dee Dee. It can cost you if you aren't prepared when tax time rolls around. That is why I have always said you must treat the release of a book or your writing career as the launch of a new business, because that is exactly what it is.
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