A Tax Cheat Sheet for Kindle ebook Self-Publishing
You’ve done it. After months—maybe even years—of dedication and an encounter or two with writer’s block, you’ve finished your ebook. You've heard that self-publishing for Amazon’s Kindle is a breeze, so you go to their website and click “submit.” Within a day or so, your ebook is available for purchase. Just like the self-publishing process, reporting ebook profits to the IRS is just as simple if you know what to do.
Key Takeaways
- Make sure you've got a tax identification number before you publish your ebook. This could be a Social Security number, TIN, EIN, or ITIN, depending on your residency and tax treaty with the United States.
- If you're treating your writing as a business, report your ebook earnings on Schedule C and take deductions for expenses.
- If your ebook is a one-time project, you can report your royalties on Schedule E rather than on Schedule C.
- As a self-employed writer, if you earn $400 or more after expenses from your ebook, you'll likely need to pay self-employment tax on this income.
Make Sure You Have a Tax ID Number
Before you make your ebook available to the public, make sure you have a tax identification number. If you have a Social Security number, you’re good to go. If you don’t live in the U.S., you’ll need either a:
- Taxpayer Identification Number (TIN)
- Employer Identification Number (EIN)
- Individual Taxpayer Identification Number (ITIN) from the IRS
Your country must also have a tax treaty with the U.S. If you don’t get a Tax ID number, Amazon will typically withhold 30% of your ebook proceeds for U.S. taxes.
When It’s Time to File
Usually, Amazon won’t withhold any of your ebook’s earnings if you have a tax ID or Social Security number, so you’re personally responsible for paying what you owe to the IRS.
The IRS considers writers to be small business owners, so you report earnings on Schedule C. Take deductions from this income on Schedule C for expenses you incurred while writing your book.
Tax deductions reduce the amount of income on which you’ll owe taxes. For example, if your book earned $15,000 this year in royalties, but you spent $3,000 this year to produce it, you would only have to pay taxes on $12,000 of that income. For example:
- $15,000 in royalties
- minus $500 for Internet services
- minus $500 in travel expenses
- minus $2,000 in interview expenses
- $15,000 – $3,000 in expenses = $12,000 in book income
You may also have to pay self-employment tax on this income if you earned $400 or more after expenses.
If your ebook is a one-shot deal—in that you don’t intend to make a career out of writing—instead of using Schedule C, you can report any royalties earned on Schedule E. Report your earnings this way, if your writing isn’t an ongoing small business. Whether you use Schedule C or Schedule E, the resulting calculation is then transferred to Form 1040.
TurboTax Tip:
You can offset a business loss from your self-employment as an ebook writer against other income sources, which might reduce your overall tax liability.
A Loss Can Offset Other Income
If, after completing Schedule C, you realize that you spent more this year producing your book than it has earned, you likely have a business loss. You can typically deduct this loss from other sources of income—such as other work—reducing the amount you must pay taxes on.
You may have to prove to the IRS that your writing is a business, not a hobby. Your writing may be considered a business by the IRS if you:
- treat your writing like a business, because you expect to make money from it
- actively pursue deals with other publishers
- keep detailed records regarding what you spent and what you earned, including receipts for expenses and royalty statements
Kindle Singles Are Treated the Same as Kindle Direct Publishing ebooks
If you publish a Kindle Single, the same tax rules apply. The only difference is that under Amazon rules, Singles are shorter—no more than 30,000 words.
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