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Discussion Starter #1
Hi... I'm sorry to be asking this question.  I'm sure it's been answered a dozen times over.  It's just that when I did a search just now, I wasn't finding previous conversations that dealt specific to this question or else there were conflicting answers.

Does anyone know?  From what I read when I signed up, Amazon will withhold 30% income tax (for American based authors).

p.s. I guess I should add that I haven't received a royalty check yet and am hoping that Dec/January will be the month.  However, I'm not sure if it will or not if taxes are taken out.  I'm concerned that after taxes, the payout will drop below $10.  Yep... royalties were very low for my first few month.
 

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Amazon only withholds 30% tax for those who do not provide a SSN/EIN (in the US) or nonresidents who don't provide a TIN and the appropriate forms to demonstrate that no tax withholding is required under the tax treaty.

If you're a US citizen and you gave them a SSN, they should not  be withholding any taxes.
 

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You are not an employee, you're an independent business. So you'll need to file as a business at the end of the year. This will mean paying the "self employment tax" of 13.3% on profits as well as income tax.
 

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Discussion Starter #4
Oh wow... I'm glad I asked this question. I was thinking that they would be withholding 30% for income tax.

Katie Elle said:
You are not an employee, you're an independent business. So you'll need to file as a business at the end of the year. This will mean paying the "self employment tax" of 13.3% on profits as well as income tax.
Katie -- Can you explain a bit more about the 13.3% tax on profits AS WELL AS income tax? I'm not sure I understand.
 

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Katie is referring to the self-empoyment tax. It's for people who own their own business. Freelance writing is considered a business. Of course, paying the self-employment tax also has to do with how much money you make and if you have the option of filling earnings as a business or as a hobby. I am not a tax professional and therefore can't offer tax advice. So probably your best bet is to talk to your accountant and they can recommend the best path for you in this situation.
 

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Discussion Starter #6
Well...  Considering Dec 31st/January 1st will probably be my first royalty check and it's going to be tiny, I suspect I'm safe for 2012.  But, I'm glad I now know I need to be setting some money aside for the tax collector come 2013 -- in addition to recognizing in advance that I'll probably need some specialized tax help for 2013.

As always, thank you to everyone for the guidance!
 

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About the self-employment tax, if you're an employee you pay into medicare and FICA and your employer matches what you put in. Since as someone self-employed, you don't have an employer to do that, you instead pay the "self employment tax" which is pretty much what you and your employer would have paid had you been an employee.

According to the IRS website, if you make more than $400 you need to file self employment tax.
 

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Discussion Starter #8
Do the royalty checks get dispersed on the 1st of the month or the last day of the month?  If they are on the first day of the month, then I will have $0 earnings for 2012 from my writing.  Either way, I will come nowhere near the $400 mark.  Glad to know it really will be a non issue for 2012.

This is what I'm currently thinking:

I've set up a savings account into which to channel my royalty EFT's - using it as a gateway account.  Given that no income tax is taken out, I'll take 30% of the royalties that come in and channel it into another savings account earmarked for paying taxes. The rest I'll channel into some other account(s) for either savings or use.  Is that in line with what others are doing?
 

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Ada O'Flaherty said:
Do the royalty checks get dispersed on the 1st of the month or the last day of the month? If they are on the first day of the month, then I will have $0 earnings for 2012 from my writing. Either way, I will come nowhere near the $400 mark. Glad to know it really will be a non issue for 2012.
My remittance advice for December is dated Dec. 28th, and it usually hits my account via EFT on precisely that date.

I've set up a savings account into which to channel my royalty EFT's - using it as a gateway account. Given that no income tax is taken out, I'll take 30% of the royalties that come in and channel it into another savings account earmarked for paying taxes. The rest I'll channel into some other account(s) for either savings or use. Is that in line with what others are doing?
I do almost exactly the same thing (except that I save 35%--which is more than enough, but it means that when I do my taxes, I get to pay myself a "bonus"). I have a separate savings account that's only for tax money, and it gets paid first.

When I first started out as a writer, I didn't set money aside for taxes except in my head ("here, I think this will be enough... I just won't spend that, and it'll all be good!") and that led to an unpleasant April surprise.
 

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Discussion Starter #10
I think I will be good at least through the second quarter of 2013 before needing to seek out an accountant.  And I definitely don't want to find myself in a situation of having to pay penalties. I know someone who had to (not an author) and it was a mighty sucky blow.  Sort of insult to injury.

Courtney -- I'm glad you chimed in on how much you set aside.  I was actually starting to delude myself that I could set aside less, something like 23%.  Your 35% is a good eye opener.  I might still set aside less just at the beginning but I definitely don't want to end up in a pinch come tax time.
 

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Ada. . . .

I strongly suggest that you consult a credentialed tax return preparer. . .Sooner rather than Later . . .especially one who has some experience with self employed individuals. There are things you will need to pay attention to as to record keeping and such. You may have to make estimated tax payments depending on your income from self employment relative to your other income on which tax IS withheld.

'Setting aside' the money may not be sufficient: the law says you pay as you earn. Hence the possible need for estimated payments.

Now, it sounds like you won't have any issues for 2012, but you do want to talk to someone to plan for future years. If you have other jobs in the household where taxes are withheld, you may be able to adjust withholding there so as to not have to bother with quarterly payments. But if you're very successful, there may come a time when that no longer works.

There will also be state considerations -- taxes and possibly business licenses; that really depends on the state.

As has been alluded to as well, you need to account for income tax as well as social security, aka Self Employment Tax. Essentially you pay both the employer and employee parts, though there is also an adjustment that will mitigate the bite.

For 2013, as the law stands, the full Self Employment Tax rate will be 15.3%.

Be sure you're talking to a credentialed person: an Enrolled Agent or Registered Tax Return Preparer. You probably do NOT need an accountant, though an accounting firm may have a tax credentialed person on staff. You can find people through www.natptax.com or www.naea.org.

I am an Enrolled Agent. Unless otherwise stated, any tax advice contained in this message is not intended or written to be used, and cannot be used, by the reader to avoid any federal tax penalty that may be imposed on the taxpayer.
 

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Discussion Starter #12
Hi Ann,

Well, that is a Lot to think about! My earnings will not likely top $400 within the first three months of 2013, mostly because of the two month delay between earning the royalties and getting paid out for them. As money is tight until I start getting some extra in from the royalties (ok, even after then for awhile, too), talking to a tax consultant before early spring will probably not be in my budget.

Is there a basic no-brainers list of things I should track until I can hire someone?  I understand that your guidance is guidance only and not full out official tax advise.
 

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IRS publication 334 is a decent general overview: Tax guide for Small Businesses.  There may be a lot in there that doesn't apply.  And there are additional publications with more details on some things, depreciation for example. 

A review of the Schedule C will give you a general idea of the categories of expenses that may be allowed. . . . as well as the instructions for that form.

All are available via the IRS website in dowloadable PDF files.

If you have a regular tax preparer, be sure to talk about it at your appointment this spring.

If you use software, check out the vendors 'help' site.  There may be additional information there as well.

You will not likely find anyone in March or April who is willing to sit down with you and just give some advice unless you're having them prepare a return -- they'll just be too busy.  Or, if they are willing, they'll charge you a premium.  But if they're doing your 2012 return, they'll likely be willing to discuss changes for 2013.  You want someone who will sit and talk with you -- not some one who requires you to answer 4 pages of questions, drop off your paperwork, and come back in a month.
 

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Discussion Starter #14
Is there any point for any reason that I would need to disclose my pen name to a tax preparer?  I'm thinking that there's not a reason but I just want to be sure.  Given that I write erotica, I feel more free to explore the genre if I can do so with anonymity.
 

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There shouldn't be any reason to tell a tax guy your pen name unless you set that up as your business name.  Have a look at www.sba.gov.  There are all kinds of (free) resources there about starting your own business (which is what you're doing).  Also, www.score.org has great (free) resources too.  They won't do your taxes for you, but SCORE will meet with you in person and help you set up a business plan, marketing plan, etc.  SCORE are retired businessmen/women, so they may not know a lot about self-pub, but they do understand business.

In the meantime, set aside 1/3 of your earnings into a savings account for taxes.  You may not need that much, but if you do, you'll have it.  It's a good habit to get into right off the bat so you don't end up short or surprised down the road.  And as Ann said, make a point to talk to the tax guy in the first quarter of 2013.  You don't want to start out wrong and have to backtrack and you never know what's going to take off (sometimes quickly).

Payment works like this- Amazon pays 60 days after the end of the month where you make your minimum.  So, say you make your minimum in December.  You'll see the money in your account (electronic deposit), at the beginning of March/end of Feb.  You'll get an email a week or two before the deposit to let you know it is coming (check your spam folder the first time to make sure you don't miss it).  It can also take a day or two for your bank to process on their end.  Each month that you make your minimum the process will repeat.  You have to make the minimum for each Amazon separately (.uk, .de, .jp, etc.).

I also recommend that you make yourself an Excel sheet or buy a pen and paper ledger book at the office supply store or something to keep track of all your expenses and income, as well as track your sales, how each book is doing etc.  That's another thing that will be nearly impossible to recreate if you don't start early and keep it up.  Cut and paste and save the 6 week and monthly reports too.  They roll up and go away and you can't retrieve them once they're gone.  It is good to know which books sell in which markets, how you've done with promos, which books get borrows and which don't, etc.

Welcome to the business of self-pub!
 

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Ada O'Flaherty said:
Is there any point for any reason that I would need to disclose my pen name to a tax preparer? I'm thinking that there's not a reason but I just want to be sure. Given that I write erotica, I feel more free to explore the genre if I can do so with anonymity.
I wouldn't ask for it for any tax related reason. I'd need to know the name you're filing under and SSN of course. This assumes that the payments are made to your real name.

But don't be surprised if the person asks, conversationally, something like, "what sort of stuff do you write?" I would because I read loads. :D So you should be prepared to answer that sort of question.

Andre is right about starting NOW to keep track of things -- it's 10 times harder to try to re-create it after the fact. Now, the tax person probably won't care about how much of each book you sell -- just a total amount of what did each vendor pay you. He/She probably won't even need a breakdown in which expenses apply to which book -- just what the categories are. BUT that information is probably useful to YOU for your own purposes.

(I must note, however, that Betsy has not commented in this thread; contrary to popular belief, we are two separate people. -- Ann ::) )
 

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Discussion Starter #17
I'm keeping the erotica writing pretty close to the chest at the moment but eventually (after I quite my day job) I'll be more willing to own up to writing erotica.  Even then, though, I'll be keeping my pen name private. I don't use my pen name as my business name so that takes care of that issue.

I am getting a lot of great advise from this thread.  I had not thought to save the six weeks reports that roll.  I'll start doing that now.

I don't recall getting an email from Amazon announcing that I would be receiving a payment for Dec/Jan so maybe once again I didn't make the minimum.  I had forgotten about that the minimum needs to be made for each area before they release it.  I know that December will trigger a payout when December's royalties get paid.

Wow... I am getting an ever greater sense of the self-employed business aspect of being an author.  I can see that it will be like three jobs - my day job, writing, and running a private business.  Eeekk!  Hopefully the days of being a two job person (writing plus running a private business) will come soon.
 

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Discussion Starter #18
Something I just realized yesterday and which blew my mind, under Reports, I thought that the Amazon.com (with India) report was an all inclusive report comprised of all sales everywhere.  Nope!  Same thing with the 6 weeks reports.  You have to drill down through all the country options to get the information for each.  Lol... the things I have yet to learn!

Merry Christmas everyone!!!
 

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Ann in Arlington said:
(I must note, however, that Betsy has not commented in this thread; contrary to popular belief, we are two separate people. -- Ann ::) )
I have no clue to what you might refer... And as Ann said, make a point to ::)

(I did know that, let's blame medicine, eggnog and lack of sleep. That's my line, I'm sticking to it!)
 

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Ada O'Flaherty said:
Something I just realized yesterday and which blew my mind, under Reports, I thought that the Amazon.com (with India) report was an all inclusive report comprised of all sales everywhere. Nope! Same thing with the 6 weeks reports. You have to drill down through all the country options to get the information for each. Lol... the things I have yet to learn!

Merry Christmas everyone!!!
I think it took me a couple days to click on that little drop down and see what it did too.

You could always answer that "Oh, what do you write?" with something like "Esoteric experimental free verse about dystopian post-modernistic angst. Nothing all that interesting, but, you know, on the internet people will buy anything. Even my mother won't read it." That should keep them from asking again :)
 
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