Bookshelf | Reports | Community | KDP Select

Home » Amazon KDP Support » Ask the Community » General Questions

Thread: My Accountant says we do not get "royalties."


This question is not answered. Helpful answers available: 2. Correct answers available: 1.

Reply to this Thread Reply to this Thread Search Forum Search Forum Back to Thread List Back to Thread List

Permlink Replies: 59 - Pages: 4 [ 1 2 3 4 | Next ] - Last Post: Mar 16, 2015 1:57 PM Last Post By: jm14
thetimucuan

Posts: 5,120
Registered: 09/14/10
My Accountant says we do not get "royalties."
Posted: Jan 3, 2013 5:56 PM
 
Click to report abuse...   Click to reply to this thread Reply
I have been filing my taxes as a self-published writer, and my accountant told me I must file as a small business owner and pay self-employment tax. He also told me that under IRS rules, self-published writers do not really get "royalties" from Amazon; we get profits from our book sales. He said that traditionally published writers are not considered to be self-employed business owners, but self-published writers are. There seems to be some disagreement on this with other writers here. This subject has come up before and notjohn and "BookNooks" (or whatever she calls herself here) both said my accountant is correct many months back. Obviously, if I do not have to pay self-employment tax (15.3%), I would love to stop paying it. Can anyone here clear this up? Not that I would go against my accountant without checking other accountants first.
andresanthomas

Posts: 4,998
Registered: 01/01/12
Re: My Accountant says we do not get "royalties."
Posted: Jan 3, 2013 6:09 PM   in response to: thetimucuan in response to: thetimucuan
 
Click to report abuse...   Click to reply to this thread Reply
You're correct. Here's the definition of "royalty" from Wikipedia-

Royalties (sometimes, running royalties, or private sector taxes) are usage-based payments made by one party (the "licensee") to another (the "licensor") for the right to ongoing use of an asset, sometimes an intellectual property (IP).

We're not licensing our text to Amazon. We're selling our product (which happens to be a book) in Amazon's store. We control the content, cover, pricing, marketing, markets that it is distributed in, whether it is on Amazon or elsewhere...
jm14

Posts: 2,623
Registered: 10/06/11
Re: My Accountant says we do not get "royalties."
Posted: Jan 3, 2013 6:24 PM   in response to: thetimucuan in response to: thetimucuan
 
Click to report abuse...   Click to reply to this thread Reply
You do indeed have to file a Schedule C--"Profit of Loss from Business or Profession"--and you do indeed have to pay the 15.3 percent FICA (SEP) tax.

Traditionally published writers have to do the same thing. I have been paying it, as a traditionally published writer, since 1964. And I am still paying it now, on both my traditionally published work and my self-published work as well--and legally must.
thetimucuan

Posts: 5,120
Registered: 09/14/10
Re: My Accountant says we do not get "royalties."
Posted: Jan 3, 2013 6:53 PM   in response to: jm14 in response to: jm14
 
Click to report abuse...   Click to reply to this thread Reply
I will take your word on the traditionally published writer taxes, as I will never be traditionally published, anyway. I do know that "unearned" income (such as my retirement income from my investments) is not taxed under self-employment tax. I wonder if Hemingway's wife had to pay self-employment tax on the royalties from the copyrights he left her, since she did nothing to "earn" it.
thetimucuan

Posts: 5,120
Registered: 09/14/10
Re: My Accountant says we do not get "royalties."
Posted: Jan 3, 2013 6:54 PM   in response to: andresanthomas in response to: andresanthomas
 
Click to report abuse...   Click to reply to this thread Reply
That's what I was told by my accountant.
andresanthomas

Posts: 4,998
Registered: 01/01/12
Re: My Accountant says we do not get "royalties."
Posted: Jan 3, 2013 6:55 PM   in response to: thetimucuan in response to: thetimucuan
 
Click to report abuse...   Click to reply to this thread Reply
I wonder if Hemingway's wife had to pay self-employment tax on the royalties from the copyrights he left her, since she did nothing to "earn" it.

In a case like that, no. It would go under that "royalty" line just like royalties on oil rights and other passive income.
jtbigtoad

Posts: 9,274
Registered: 08/01/10
Re: My Accountant says we do not get "royalties."
Posted: Jan 3, 2013 7:10 PM   in response to: andresanthomas in response to: andresanthomas
 
Click to report abuse...   Click to reply to this thread Reply
Actually the form 1099 misc from Amazon says that it is royalties...

The above definition of a royalty:

Royalties (sometimes, running royalties, or private sector taxes) are usage-based payments made by one party (the "licensee") to another (the "licensor") for the right to ongoing use of an asset, sometimes an intellectual property (IP).

It seems to fit here.

Amazon's terms of service state the "Sale" of a Kindle book grants a License to read the book. It is not a physical property that can be transferred (legally) to another party or resold(Legaly).

Amazon is not "Selling anything for you. They are transferring the license to read the book from you to the "Purchaser."

A royalty is a passive income (like a rent) and not subject to self-employment tax.

If you choose to file the income under a schedule C, (profit and loss from a business) then you will have to pay self-employment tax.

You can also claim expense deductions associated with the conduct of this business.

You cannot claim Expenses if yu list the Royalty as a line item on the form 1040.

JT

;)
c_har2u

Posts: 1,635
Registered: 10/15/10
Re: My Accountant says we do not get "royalties."
Posted: Jan 3, 2013 7:12 PM   in response to: thetimucuan in response to: thetimucuan
 
Click to report abuse...   Click to reply to this thread Reply
I am far from being any kind of expert on this matter. It appears that Amazon is the only bookseller tht uses the term "royalty" to describe our monies. B&N calls it "Publisher's Revenue." Smashwords and Kobo uses the term "earnings." (Not sure how Apple defines it since I don't deal with them directly). Maybe it depends on how the entities define themselves. To me they're sort of a hybrid between Publisher and Distributor. I wonder if it's an area where each Accountant has a different take on the matter and they're all correct? I've always filed a Sched C. But I've never paid a self employment tax because I do have a regular job. Maybe that has been what's saved me. But of course I'm far from being any kind of expert.
extradimensions

Posts: 4,140
Registered: 05/19/09
Re: My Accountant says we do not get "royalties."
Posted: Jan 3, 2013 7:51 PM   in response to: thetimucuan in response to: thetimucuan
 
Click to report abuse...   Click to reply to this thread Reply
A few notes:

Amazon Digital Services sends Form 1099-MISC with an amount in box 2, which says Royalties. The instructions with this form say that amounts shown may be subject to self-employment tax, then it says if your net income from self-employment is $400 or more.

The title of IRS form Schedule E says to use it to report rents, royalties, etc. In the instructions for Line 3a and 3b, there is a note in the 2nd column (midway down), saying: "If you are in business as a self-employed writer, inventor, artist, etc., report your royalty income and expenses on Schedule C." This seems to read as an exception to reporting royalties on Schedule E.

Schedule C is for net profit from business. It does allow you to deduct business-related expenses (it also says to keep good records). If these expenses do not exceed $5000, you may be able to file Schedule C-EZ.

Schedule SE is for self-employment tax in addition to Schedule C (or Schedule E).

Obviously, you should check with an accountant, but you might want to ask you accountant about this and judge how knowledgeable he/she seems from his/her response.
jm14

Posts: 2,623
Registered: 10/06/11
Re: My Accountant says we do not get "royalties."
Posted: Jan 3, 2013 8:16 PM   in response to: extradimensions in response to: extradimensions
 
Click to report abuse...   Click to reply to this thread Reply
The title of IRS form Schedule E says to use it to report rents, royalties, etc. In the instructions for Line 3a and 3b, there is a note in the 2nd column (midway down), saying: "If you are in business as a self-employed writer, inventor, artist, etc., report your royalty income and expenses on Schedule C."

Exactly.
scribblr

Posts: 3,504
Registered: 05/08/08
Re: My Accountant says we do not get "royalties."
Posted: Jan 3, 2013 11:11 PM   in response to: thetimucuan in response to: thetimucuan
 
Click to report abuse...   Click to reply to this thread Reply
That which we call a rose
by any other name
would smell as sweet.
mayamiami

Posts: 322
Registered: 04/02/12
Re: My Accountant says we do not get "royalties."
Posted: Jan 4, 2013 6:30 AM   in response to: thetimucuan in response to: thetimucuan
 
Click to report abuse...   Click to reply to this thread Reply
Makes me wonder if being 'doing busines as' a tax filing under employment tax, if it all falls into the standard deductions category of being self employed. Income tax/employment tax? Moreover, can one take advantage of business expense deductions? That is, without an occupational license and if so, there are many business deductions one could take advantage of. (put on thinking caps) ;)

.... love to buy that Canon color laser printer, that new copy of Microsoft word 2010, buy some editing services, cover and artwork services, webmaster services ... et cetra

But then it would be absolutely make sense that I apply for a business license for next year. That-a-way, I can itemize my deduction a little more 'lucratively'.

ooops and oh yeah, I could buy stuff at wholesale!

Edited by: mayamiami on Jan 4, 2013 6:31 AM
punchygonzales

Posts: 2,853
Registered: 11/26/11
Re: My Accountant says we do not get "royalties."
Posted: Jan 4, 2013 12:10 PM   in response to: mayamiami in response to: mayamiami
 
Click to report abuse...   Click to reply to this thread Reply
"But then it would be absolutely make sense that I apply for a business license for next year."

Nope. Sole proprietorships don't need a business license. Those are more for mortar anf brick stores anyway. It gets iffy for something like a roach mobile that sits outside selling tacos in the parking lot before moving on to the next one. If he primarily gets his business from one location, like a big factory, then cities will often try to make them buy a license. An author has no need for a business license. Niether does anyone involved in something like a service business that doesn't have a warehouse like a lot of small contractors, window cleaners, painters, roofers etc.
darkdawn389

Posts: 544
Registered: 01/21/12
Re: My Accountant says we do not get "royalties."
Posted: Jan 4, 2013 12:24 PM   in response to: thetimucuan in response to: thetimucuan
 
Click to report abuse...   Click to reply to this thread Reply
Your accountant is right. We are self employed. Those who argue must not have done taxes on their earnings yet, because every one from H&R Block, my father in law's accountant, and Jackson Hewitt say I'm a small business owner.
booknookbiz

Posts: 4,076
Registered: 03/04/10
Re: My Accountant says we do not get "royalties."
Posted: Jan 5, 2013 2:56 AM   in response to: thetimucuan in response to: thetimucuan
 
Click to report abuse...   Click to reply to this thread Reply
@thetimucuan:

Several things confuse people here, particularly those who are right-brained, rather than left. Firstly: many many self-employed "writers" did not have to file as self-employed, because they were writing articles, stories and books purchased by others. A self-publisher is a completely different creature. You are running a business, and you are self-employed, whether or not your publishing business is profitable. What Amazon calls it on teh 1099 is irrelevant; there are other criteria by which self-employment is determined and by which the IRS holds your feet to the fire. (Trust me: I'd love not to pay that tax, myself.) You're not selling your work to a single entity, which is paying you and then your work is over; you're the publisher--your publication and sales of your book are an ongoing enterprise.

Someone writing freelance articles at home and selling them to, say Cosmo or Fisherman's Weekly, is not self-employed, but you are. On a bright note, you get more deductions, if that helps any. And you can do the long form for all your write-offs.

Does that help? I'm not an accountant, nor do I play one on TV, but this is information from a fairly pricey youngest-ever International Tax Law partner/expert at the then-Arther Andersen, and my current accountant, who ain't chump change, either. And I feel very similarly to you about taxes, the feds, etc., if I read your posts correctly, so I would not tell you this did I not believe it to be accurate and correct.

Hitch
That "Booknooks" person...
We produce ebooks
Listed as an Amazon Professional Conversion Service: http://bit.ly/uFwMwb
An INScribe Preferred Conversion Partner
http://www.booknook.biz/
Follow me on Twitter: @BookNookBiz
"If you think it's expensive to hire a professional to do the job, wait until you hire an amateur."
  • Red Adair
Legend
Helpful Answer
Correct Answer

Point your RSS reader here for a feed of the latest messages in all forums