Updated for tax year 2017.
If you have a story, inspiration, or anything else you want to tell the world, there’s never been a better time to do it. You can self-publish in hard copies or with Kindle and other ebooks and get paid for your work. The traditional publishing gatekeepers can’t stop you now!
When you start making money as a self-publishing author, however, make sure you know how to report your earnings correctly for tax purposes. Get started with these five tips.
1. Find all your income from self-publishing and ebooks.
If you sell $600 or more in printed or digital books to a publisher, you should receive Form 1099-MISC in the mail after the end of the year.
If you sell books yourself, and you accept credit cards or other online services for payment, you should generally receive a Form 1099-K from the credit card processing company. Payment settlement entities, or PSEs, are required to send you Form 1099-K if they processed $20,000 or more in payments and at least 200 transactions for you in the year.
You must report at least as much total business income as shown on all the 1099 forms you receive. You must also report income from book sales regardless of whether you receive a Form 1099. For example, if you sold books for cash at an outdoor market, you should report that money. Even if you received less than $600 from a publisher, you should still report those dollars.
2. Report your income and expenses from self-publishing on the right form.
When you sell things, even ebooks on the Internet, the Internal Revenue Service (IRS) considers you to have a business. Unless you organize your business some other way, like a corporation or partnership, you are by default defined as a sole proprietorship. In that case, you should report your income on Schedule C with your Form 1040, Individual Income Tax Return.
Don’t be confused by Schedule E, Supplemental Income and Loss. It’s true that “royalties” are reported on Schedule E. However, the IRS specifies that royalty income and expenses as a self-publishing author must be reported on Schedule C, not on Schedule E.
3. If you make a net profit, expect to pay self-employment tax.
You must file Schedule SE, Self-Employment Taxes, if you have a profit from your business. Self-employment tax includes Social Security tax and Medicare tax. It’s calculated as 15.3 percent of your net self-employment income. That’s the income you earned as a self-publishing author after allowable deductions for business expenses.
TaxAct automatically calculates your self-employment tax for you and enters it onto Schedule SE, if required.
4. If you have a net loss, you may be able to offset some of your other taxable income.
Writing and selling books is not always profitable the first year. If you’re operating your business in a business-like manner, and your expenses exceed your income, you may be able to deduct your business loss. If you have other income, like from a traditional job, your business loss can help offset that income and reduce your tax bill if you meet the qualifications.
5. You may also have state and local tax obligations.
If you live in a state with state income tax, you should include your business income on your state income tax return.
You may also have to collect state sales tax on any sales and file excise tax returns. Be sure to research the rules of your state. Find out how often you are required to file excise tax returns. That will help you avoid late payment and filing penalties.