I’m thinking of publishing a book on kindle, but I don’t currently have a business set up. Do you need a business to publish a book? I’m curious as to how to handle US taxes for the royalties.
Kindle is a great way to get your book into the hands of readers.
By default, you are in business as soon as you receive payment for your services or sell something (like a book).
You can set up a business in 3 steps:
1. Get an EIN (Employer Identification Number) from the IRS. It’s like a Social Security Number for a business. This keeps your SSN private.
2. Register a business name if you want one with your county or Secretary of State.
3. Open a business checking account with the new EIN and business name.
Or authors can skip all three steps and just:
1. Use your SSN. You’ll give it to Amazon/Kindle when you sign up.
2. Use your real name as your business name. Easy and very common for authors to do this.
3. Mix business income and expenses into one account. This is not recommended because you’ll spent extra time untangling personal and business expenses at tax time and you’ll not have a clear picture of your businesses profitability, but it’s up to you.
Taxes for Kindle Authors
At tax time, you’ll record all your income and expenses on Schedule C Business Income or Loss as part of your own 1040. This assumes you are a sole proprietorship (not a partnership or corporation) which probably 90%+ of authors are).
You’ll pay federal income tax and Self-employment tax (Social Security and Medicare tax for self employed people like authors). So you’ll also fill out Schedule SE. The SE tax is 15.3% of your profit (ouch!)
See details on taxes in Chapter 13 of Business Tips and Taxes for Writers.
Sales Tax for Kindle Authors
You might have to deal with sales tax if you live in one of the 23 states that taxes digital products. Amazon collects the sales tax for 8 states where they have nexus (a physical presence).
Here’s Amazon’s word on sales tax: http://www.amazon.com/gp/help/customer/display.html?nodeId=468512
Best of success to you in your new business adventure!
Carol Topp, CPA
P.S. I’m one of those rare people that enjoy speaking in public.
Would your writers group be interested in my workshop “Book to Business”? I can come in person (if you’re within 90 minutes of Cincinnati, Ohio) or we can arrange a virtual visit using Skype. Contact me.