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Hi Fellow Indie Authors,

I am a newbie and have a much-needed question and what better place than to ask you veterans how to properly do this the right way.

That is:  How do we pay our taxes as indie writers?  (Granted, I didn't earn much, but over the $500 minimum, so I will be needing to file for the 2012-2013 period.) 

What forms do we fill out, federal and local, what counts as expenses to deduct, and do we need to pay taxes outside the US, for example to the UK, and other parts of Europe where our Kindle books were bought??  This is all very confusing, sorry if it's a simple question to the rest of you veterans, but I could really use help!)  ???

Thank you all kindly in advance.

Happy 2013 everyone.
 

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Welcome!

This is NOT a simple question and, honestly, this isn't the place to ask it. :-\  You should find yourself a local, credentialed tax professional and make an appointment with him or her SOONER rather than later. 

A couple of important points:

There is no minimum.  If you made even $a income from writing, you are supposed to report that on your return -- assuming your total income is above the filing threshold.  Of course, it's generally simpler all around if it's just a few dollars, or even a few hundred, than if it's several thousands. 

You may not get 'official' income documentation, if it's not at least $600, but you still need to report it.  You should be keeping track.  Author members here CAN tell you where you can find regular reports which you'll want to download and save.

In all cases there are potential deductible expenses but you have to have records.  If you can't prove you spent the money and it was for your business, you can't deduct it, sorry.  Assuming there are records, expenses may include -- among other things -- costs of supplies, advertising, travel, depreciation on equipment etc.

If you're a US citizen or resident, you probably only have to file in the US, even if some of your earnings are because your books sold via amazon.uk or something.  Whether you have to file and/or pay taxes to other countries depends on your status with those countries.  Most US states that have an income tax will also tax the self-employment income.  You may need a business license in your local jurisdiction or have to file a personal property tax return. Again, you want to talk to someone LOCAL to you!

Both the National Association of Tax Professionals (www.natptax.com) and the National Association of Enrolled Agents (www.naea.org) will have directories you can use to find someone in your area who can assist you.  You may also be able to find someone at one of the big commercial firms; be sure to explain that you need assistance regarding the reporting of self-employment income and that you have questions.  If you just go with someone who's put out a shingle, be sure to ask lots of questions -- most importantly you want to verify that they are credentialed (RTRP or EA from the IRS or CPA from a state).  Ask what credential they have, and verify it on line.

Disclaimer: I am an Enrolled Agent and employed by H&R Block. Any tax advice contained in this message is not intended or written to be used, and cannot be used, by any member here, to avoid any federal tax penalty that may be imposed on the taxpayer.

 
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Ann in Arlington said:
In all cases there are potential deductible expenses but you have to have records. If you can't prove you spent the money and it was for your business, you can't deduct it, sorry. Assuming there are records, expenses may include -- among other things -- costs of supplies, advertising, travel, depreciation on equipment etc.
Ye gods, can you repost this in big neon letters. I can't bear to have another argument with someone who says how his friend's cousin's neighbor always deducts X every year and has never been audited so it is OK. :eek: There is so much bad, bad, BAD advice given on writer forums about deductions.
 

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Discussion Starter #4
Thanks for the reply.
I was just curious what other writers have done for the federal taxes in US.  Like what forms they filed if indie writer and had no other job/source of income than just writing.  Where they got their info and such.

Did you guys have to also send in your W2 forms for this?  Does Amazon send them out?? Because I haven't gotten mine yet (do I have to specifically ask them for it? Come to think of it, BarnesAndNoble didn't send them to me either...)  

If anyone can PM me who knows how Amazon handles these, and how it works if you used a pen name, etc, please contact me if this isn't the right place to discuss this, though I feel other writers doing this for the first time would also be helped by the discussion.
 

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Yes, it's a 1099-MISC and you likely won't receive it until shortly after the beginning of February, since they have until Jan 31 to mail them out.

And while $600 is the general threshold for contractors, it's actually $10 for royalty income. So as long as you've earned at least $10 from each of your retailers, they will send you a 1099-MISC. Some retailers email it to you. I believe others (Smashwords? or am I remembering incorrectly?) have you login to see the tax form.

I second the suggestion to consult with an accountant WHO ACTUALLY HAS EXPERIENCE DEALING WITH AUTHORS AND SELF-EMPLOYMENT if you don't feel up to the challenge of preparing your own taxes. I would not advise going to a tax prep service at the mall or whatnot. And I put that part in caps to emphasize it. Not all accountants have worked with authors before, and thus don't understand some of the nuances regarding royalty income.
 

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indieauthorstaxes said:
Thanks for the reply.
I was just curious what other writers have done for the federal taxes in US. Like what forms they filed if indie writer and had no other job/source of income than just writing. Where they got their info and such.

Did you guys have to also send in your W2 forms for this? Does Amazon send them out?? Because I haven't gotten mine yet (do I have to specifically ask them for it? Come to think of it, BarnesAndNoble didn't send them to me either...)

If anyone can PM me who knows how Amazon handles these, and how it works if you used a pen name, etc, please contact me if this isn't the right place to discuss this, though I feel other writers doing this for the first time would also be helped by the discussion.
I can only stress, again, you need to consult with a tax professional. This question comes up regularly -- not surprisingly, at least every year around this time! :D -- but the answer isn't simple. EVERYONE's situation is different. Whether you need to file, and what forms depends on so much beyond the fact of how much you made from your books. Do you have other income? What sort of income is it? Are you married? Kids? Did you keep records for expenses? etc. etc. Without looking at the whole situation, it would be inappropriate of me to advise you on anything specifically. :-\

I can say this: Amazon will not send you a W2. You are not their employee. You may get a 1099-MISC if they paid you at least $600 $10* last year. You need to report your income whether you get that form or not -- as well as income from other vendors. Most likely you'll file a regular 1040 with Schedule C attached to report income and expenses from authoring. If your only income, from any source is $500 of income from selling books, you ARE required to file a return. You will likely owe no income tax, but you will potentially owe self-employment tax (social security coverage for the self-employed) depending on what expenses you are eligible to claim.

You can get some basic information from the IRS web site. Publication 334 is the Tax Guide for Small Businesses. I'd start there if you want to do some research on your own. Which, by the way, is a good idea because then you'll know what questions you need to ask!

{Disclaimer} I am an Enrolled Agent and employed by H&R Block. Any tax advice contained in this message is not intended or written to be used, and cannot be used, by any member here, to avoid any federal tax penalty that may be imposed on the taxpayer. And, yeah, I kind of need to say this any time I answer even a general question here. Basically, if they decide you owe a penalty for some reason, you can't claim you read it on the internet and expect that to save your bacon. ::) :D

edit* Right. . .$10 for Royalties. I keep forgetting that -- I only have one writer client. ::) An important thing to ask anyone you're interviewing for the job of Your Tax Professional is whether they know the difference in how royalties are reported for an active writer vs for a retired one. Or, maybe more importantly, the difference between royalties for a writer/musician vs royalties for oil and gas wells. :)

As to going to a service at the mall. . . . depending on where you are H&R Block has some really quality people. 'Round here, for example -- Northern Virginia -- just about every office has at least one Enrolled Agent; many have more than that. Even the offices that are only seasonal. Now that might not be the case in every area, but the key is to ask the question -- if you're not comfortable with the experience level of the person you're introduced to, feel free to ask for someone else or ask to be referred to another office where there might be someone with more experience. If they won't do that, go elsewhere -- the two websites I gave above are for two good professional organizations with well credentialed, experienced people.
 

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It is well worth the money to get it done be a pro at least this year to see how it is done. You might be able to go out on your own once you see your properly filled out tax forms next year. Don't be afraid of the cost--ask around and get estimates. I LOVE my acccountant and he's super reasonable even though I am divorced and remarried and the kids are split and the health costs are split and I am an author with independent royalities PLUS I own two small businesses!!!

Don't be afraid!
 

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indieauthorstaxes said:
Thanks for the reply.
I was just curious what other writers have done for the federal taxes in US. Like what forms they filed if indie writer and had no other job/source of income than just writing. Where they got their info and such.

Did you guys have to also send in your W2 forms for this? Does Amazon send them out?? Because I haven't gotten mine yet (do I have to specifically ask them for it? Come to think of it, BarnesAndNoble didn't send them to me either...)

If anyone can PM me who knows how Amazon handles these, and how it works if you used a pen name, etc, please contact me if this isn't the right place to discuss this, though I feel other writers doing this for the first time would also be helped by the discussion.
It sounds like you've NEVER filed a tax return in your life. Is that really possible? If so, take yourself in to the local HR Block or similar place and sit down with someone who will do it for you and walk you through the process.

Call and make an appointment, you can't just drop in at this time of year. Bring all your information- Social Security Number, any paperwork you have (W-2 and 1099's), if you get student loans or financial aid bring those papers... anything to do with money. If you're a dependant on someone else's return, bring them with you too. Have a list of how much you made from Amazon and any other writing sources, have a list of any writing related expenses you had (and exactly what they were for).

You should have your paperwork from Amazon, B&N, etc. by the first week of February, but even if you don't get it, you still have to take care of business so still need to know how much you've made. Call now to make your appointment and be prepared that you might have to get more information and come back a couple times. You do NOT want to start this project on April 13th.
 

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Ann - Don't worry, this isn't an advice questions ;)

Is there a way to search local  H&R's for Enrolled Agents?

I think I'd like my first year to have someone else do it and then we'll see going forward.

THANKS
 

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T.L. Haddix said:
You might not get your 1099 from Amazon and BN for a little while - I think they have until the end of January before they have to send them out.

As to how I handle taxes, I do my own. Have done so for a long time. I use Turbo Tax. But if you're completely green on taxes, I'd not advise doing that. I'd strongly advise consulting a tax professional who specializes in working with self-employed people, or visit your local library to see if they have any books that address those questions. That's usually a great resource.

When you open your account with Amazon, you have to fill out information using your name and Social Security number or federal tax identification number. That is the name to whom the 1099 will come.

You won't get a W2 from Amazon. You'll get a 1099 MISC, I think. I'm certain about the 1099, not certain about the MISC. W2's are for employees, and you're not an employee. You're considered a contractor.

Hope this helps.
Yes, this helps tremendously. Thank you!

Thanks everyone for their replies, especially T.L. Haddix and Amanda Brice. This is all very new for me, yes, so I do appreciate hearing from everyone's experiences and advice, when I should be expecting to receive the 1099 from Amazon, etc. All very useful for going through this for the first time.
 

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H&R Block is very reptuable, and you'll get good advice from a tax professional there. When I said "don't go to a mall place" I wasn't really referring to H&R Block. I'm not going to name names, but seasonal tax prep places aren't all created equal.  ;)

If you see an enrolled agent, you should be fine. But when I was in law school, I volunteered with a pro bono program called VITA (Volunteer Income Tax Assistance) and the only training we had was a couple of hours ahead of time before we were thrown in. I wouldn't trust a self-employed writer return to someone in that capacity.
 

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Several writers I know are using Mint.com to organize things, especially their payments from retailers and their expenses. I've been using QuickBooks for over a decade, but it's too much software for most people.
 

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T.L. Haddix said:
Oh, God. That reminds me - I need to talk to someone about a situation where we have a house on land contract, the couple split up, and I have no idea how to handle that, tax-wise. Ann, how much do you charge per hour? I can pay in chocolate and cat fur!
Chocolate sounds good. . . not too keen on cat fur :eek:

But, anyway, I'm required to charge company rates. . . .at least $100 an hour as that's what it was last year for consultation. :-\
 

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AndreSanThomas said:
It sounds like you've NEVER filed a tax return in your life. Is that really possible? If so, take yourself in to the local HR Block or similar place and sit down with someone who will do it for you and walk you through the process.

Call and make an appointment, you can't just drop in at this time of year. Bring all your information- Social Security Number, any paperwork you have (W-2 and 1099's), if you get student loans or financial aid bring those papers... anything to do with money. If you're a dependant on someone else's return, bring them with you too. Have a list of how much you made from Amazon and any other writing sources, have a list of any writing related expenses you had (and exactly what they were for).

You should have your paperwork from Amazon, B&N, etc. by the first week of February, but even if you don't get it, you still have to take care of business so still need to know how much you've made. Call now to make your appointment and be prepared that you might have to get more information and come back a couple times. You do NOT want to start this project on April 13th.
Bolding and hugifying mine. This can not be stressed enough!
 

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Caitie Quinn said:
Ann - Don't worry, this isn't an advice questions ;)

Is there a way to search local H&R's for Enrolled Agents?

I think I'd like my first year to have someone else do it and then we'll see going forward.

THANKS
Yes! Go to the company web site www.hrblock.com and search for offices in your area. You should be able to see the preparers who work out of the various offices including their credentials and specialties. Maybe even pictures. :)
 

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+1 on the consensus that you need professional help. For your taxes, that is :)

It will be relatively painless with your records and with someone who asks the right questions. The issue is knowing which questions need to be asked. For example: where I live, most schedule C income is subject to a tax levied by a transportation district covering three metro-area counties. If I lived two blocks in one direction, I would also need to be aware of a recent school district levy that may affect schedule C income. Again, easy to handle for someone who knows what to ask.

It will be a great learning experience walking through it with someone and you will find that it affects how you plan/track expenses throughout the year.

 

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Steven Stickler said:
+1 on the consensus that you need professional help. For your taxes, that is :)

It will be relatively painless with your records and with someone who asks the right questions. The issue is knowing which questions need to be asked. For example: where I live, most schedule C income is subject to a tax levied by a transportation district covering three metro-area counties. If I lived two blocks in one direction, I would also need to be aware of a recent school district levy that may affect schedule C income. Again, easy to handle for someone who knows what to ask.

It will be a great learning experience walking through it with someone and you will find that it affects how you plan/track expenses throughout the year.
Oh yeah. . . . Oregon is almost as much fun as Pennsylvania and Ohio with all the local taxing jurisdictions. . . I actually have one self employed client who lives in the Portland area. :-\
 

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You can also visit sba.gov which is the U.S. Small Business Administration, it's a free, government organization just for helping us, small business owners. They have the links you need for your local, and I attended a couple of low cost classes at my local chapter back when I first started writing. First question was "Who has a business that is already profitable?" I raised my hand. The instructor laughed at me, and said he would bite, what was my business? When I explained to him I sold my writing on the Internet, his eyes were wide and said I was the first person to ever raise their hand as "already profitable" in his class.

But if you're in this for a long haul, especially for the publishing side of our jobs, talking with a business mentor about your business plan for the year etc. is VERY helpful. And mine gave me a nifty spreadsheet that matches your Schedule C for my deductions to keep track of. Since most of my business transactions happen online, I make sure to save a local copy and a copy in my email of all of my receipts, and I also use a separate bank account for my business. This year, I just finalized an LLC because I've finally grown to a point where liability is a concern for me.

Anyway, don't be too scared about taxes, as we don't have employees, it's really rather simple. Attend a few classes on taxes for small businesses, even if you DO decide to use a service like H&R Block. We used them in 2007, my first year with a $4,000 profit to my writing business and my lady was an idiot, she only knew how to plug in our values to her little computer program. Well she screwed up because my husband is military and included HIS income in our SC taxes, showing we like owed a massive amount. I had to go back the next day (because while there as I'm saying that's not right, my husband is telling me to be quiet and it was only that night, with dozens of printed SC tax law documents printed and doing it all by hand I could SHOW him they screwed us over) and get it fixed with the manager and get our money back. She offered me a job. LOL. But no thanks, I do our taxes, and that's enough. BUt then again, I'm not super interested in deducting things like percentages of my Internet bill, either. Nor do I deduct a home office. Because we are nerds, and have the equipment regardless of whether or not I work or not from home, I only deduct my consumable office supplies that were used for my business.
 

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Ann in Arlington said:
Oh yeah. . . . Oregon is almost as much fun as Pennsylvania and Ohio with all the local taxing jurisdictions. . . I actually have one self employed client who lives in the Portland area. :-\
Yeah, this is anecdotal but I am pretty sure the brew pubs out here are more crowded during tax season.
 
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