Quick US-Tax Question

Cliff Face said:

Hi. I'm an Australian with a self-e-pubbed book on Amazon. Now, as far as I know, the US tax period starts on January 1st, yes? My question is fairly simple: If I've never received a payment from Amazon in 2015, do I have to file taxes with America?

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You pay your taxes to your home country, so you'll be doing a tax return for Australia as usual. You don't file a tax return in the US. If the tax agreement with the US means you have to pay something to the US government, Amazon will withhold that automatically. I believe this changes if you earn fabulous riches, but should that happen to any of us, we can hire a tax advisor.

More details: For Amazon to pay an Australian author, the author needs to have over $100 in royalties due to them - it's because of various legal restrictions, so that we have to have electronic transfers, which have that minimum limit on them. I've never gone over that amount, and so have literally never received any money from Amazon (I published my novel in the middle of 2015).

So yeah. I expect that I don't need to worry about the US taxes right now, because in Australia, as far as I know it's worked out not by how much work you've done (ie. money you expect to receive soon), but purely on how much money you have actually received during the tax year. But I did want to make sure, anyway, because taxes aren't something I want to screw up, y'know?

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This is based on the accounting system you use. Cash basis is the simple one where it's based on when the cash arrives and leaves. Accrual basis is about invoice and order dates, rather than when the cash actually moves. Cash basis is far simpler for our sort of small business, but not all countries allow cash basis accounting, and not for all situations. Technically it was only okay in the UK in the last few years, and even now, there's an earnings limit for using it. Before that, everyone was expected to struggle through accruals. So you need to check that with Australian tax rules.

Your guess is as good as mine when it comes to how to record Amazon earnings under an accruals system... is the date based on when an item sells on Amazon or when Amazon is scheduled to pay you for that month's earnings? How do returns factor into that? I search for articles online every now and then, and I've never found one (they're all about physical goods and invoice systems, not handling sites like Amazon). I'm also not going to hire an accountant to figure out how to do accruals for my tiny earnings. So I'm sticking to cash basis unless forced to do otherwise.

Polenth said:

You pay your taxes to your home country, so you'll be doing a tax return for Australia as usual. You don't file a tax return in the US. If the tax agreement with the US means you have to pay something to the US government, Amazon will withhold that automatically. I believe this changes if you earn fabulous riches, but should that happen to any of us, we can hire a tax advisor.

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How sure are you on this advice?

I'm a Canadian and had to file a US tax return in order to get a refund of the money withheld from a publisher (who didn't process my W8-BEN in time to avoid withholding taxes). So, yes, if you're willing to give up 30% of your US income to the US government, then you don't have to file a US tax return.

But if you don't want to just hand over your 30%, you need to take some steps - depending on the tax treaty with your country, you may need to pay some US income tax, but it's pretty unlikely it'll be the cross-the-board 30% that's estimated. Really, I don't think you'd know how much you needed to pay until you'd done your taxes, right? Depending, of course, on the terms of the treaty.

Captcha said:

How sure are you on this advice?

I'm a Canadian and had to file a US tax return in order to get a refund of the money withheld from a publisher (who didn't process my W8-BEN in time to avoid withholding taxes). So, yes, if you're willing to give up 30% of your US income to the US government, then you don't have to file a US tax return.

But if you don't want to just hand over your 30%, you need to take some steps - depending on the tax treaty with your country, you may need to pay some US income tax, but it's pretty unlikely it'll be the cross-the-board 30% that's estimated. Really, I don't think you'd know how much you needed to pay until you'd done your taxes, right? Depending, of course, on the terms of the treaty.

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As sure as I can be without hiring a tax advisor, but the government websites are there for anyone to wade through. I've not seen anything to suggest that it's normal procedure to make everyone pay 30% and then make them claim it back via a tax return. It's certainly not how it's worked when I've done it. I've submitted my W-8BEN, and the withholding rate was updated accordingly. I've not had to deal with a publisher messing up the forms, so I haven't read up on the process for handling that.

Polenth said:

As sure as I can be without hiring a tax advisor, but the government websites are there for anyone to wade through. I've not seen anything to suggest that it's normal procedure to make everyone pay 30% and then make them claim it back via a tax return. It's certainly not how it's worked when I've done it. I've submitted my W-8BEN, and the withholding rate was updated accordingly. I've not had to deal with a publisher messing up the forms, so I haven't read up on the process for handling that.

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Does your tax treaty provide for 0% tax payable on royalties? Mine does, so, yes, once the W8-BENs are in place, I don't have to mess with the IRS.

But I'm not sure how it would work for someone in a different country, one that didn't have a 0% agreement. The publisher would have to withhold tax at the rate specified in the treaty, I assume, in which case the writer would be paying taxes to the country where the money was earned rather than where the writer lives. I'm pretty sure it depends on the treaty, rather than being a blanket policy that income is taxed based on residence.

Okay, you might not be around still, but I have a question on this. You had to file a US tax return to get a refund of money withheld from a publisher who didn't process your W8-BEN in time to avoid withholding taxes. Who contacted you about this? The publisher or the US government?

JE9Lizle said:

Okay, you might not be around still, but I have a question on this. You had to file a US tax return to get a refund of money withheld from a publisher who didn't process your W8-BEN in time to avoid withholding taxes. Who contacted you about this? The publisher or the US government?

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That person has been banned, so isn't around to answer. It's possible someone else has done it, though unless you lost a lot of money, it likely isn't worth it.

As far as I know, at least as a US citizen, there are no foreign income taxes due on International sales, and Amazon handles sales tax payments. All foreign sales incur an income penalty I pay on my US return. I don't know why it wouldn't be the same the other way around for an Australian or Canadian citizen.

Al X. said:

As far as I know, at least as a US citizen, there are no foreign income taxes due on International sales, and Amazon handles sales tax payments. All foreign sales incur an income penalty I pay on my US return. I don't know why it wouldn't be the same the other way around for an Australian or Canadian citizen.

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The withholding rate depends on the country. The UK has a 0% treaty, but some countries do have money withheld (Australia is a notable example). This does impact US people, because the treaties are the same both ways, so it matters which country is paying you. If the company paying is not withholding what they should, you will be liable for that mistake. It's also something to watch with the political problems going on at the moment, because if those trade treaties fall apart, everything could change.

The bumped question is a different one though, which is what happens if 30% is withheld in error. In most cases with self-publishers, it's not enough to be worth trying to claim the money back. The example in the thread was through a publisher, so presumably that was enough to be worth the pain of claiming it through a US tax return.

The moral of this tale is always get your paperwork in promptly. It's a lot easier to sort to before you get paid than after you get paid.

Polenth said:

The withholding rate depends on the country. The UK has a 0% treaty, but some countries do have money withheld (Australia is a notable example). This does impact US people, because the treaties are the same both ways, so it matters which country is paying you. If the company paying is not withholding what they should, you will be liable for that mistake. It's also something to watch with the political problems going on at the moment, because if those trade treaties fall apart, everything could change.

The bumped question is a different one though, which is what happens if 30% is withheld in error. In most cases with self-publishers, it's not enough to be worth trying to claim the money back. The example in the thread was through a publisher, so presumably that was enough to be worth the pain of claiming it through a US tax return.

The moral of this tale is always get your paperwork in promptly. It's a lot easier to sort to before you get paid than after you get paid.

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Wouldn't you have to have a tax identification number in a foreign country to even have income tax withheld? Amazon only knows my US tax information.

Al X. said:

Wouldn't you have to have a tax identification number in a foreign country to even have income tax withheld? Amazon only knows my US tax information.

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On a US site, if I were a US resident, I would not be subject to witholding. If I were foreign (for the purposes of the law) and did not provide the proper information, I'd be subject to the maximum witholding rate. If I'm foreign and provide the correct information (this is what the W8BEN is for) then I'm subject to the rate stated in the treaty with my country.

When a site isn't in your home country, you need to check the treaty for the withholding rate. Whether there are any forms to fill in depends on the country. US people usually don't worry about this, as the main sites are in the US. But if you do sign up somewhere else, you need to check.

Polenth said:

On a US site, if I were a US resident, I would not be subject to witholding. If I were foreign (for the purposes of the law) and did not provide the proper information, I'd be subject to the maximum witholding rate. If I'm foreign and provide the correct information (this is what the W8BEN is for) then I'm subject to the rate stated in the treaty with my country.

When a site isn't in your home country, you need to check the treaty for the withholding rate. Whether there are any forms to fill in depends on the country. US people usually don't worry about this, as the main sites are in the US. But if you do sign up somewhere else, you need to check.

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Yes I get that point, but is this still the case when you get pass through sales from the US to your home Amazon site?

Sorry, I'm still struggling with this, as we are discussing two different cases in this thread. Let's say you are an author with a traditionally published book, and it sells in a lot of countries. As far as I know, traditionally published authors aren't filing individual returns for each country where their books are sold. The distributors pay whatever sales taxes are due in the country of sale, and the author pays income tax in the country of residence (or where the publisher is based.) I don't see how this would be any different from independent books sold through Amazon, assuming sales are routed through the site in your home country.

Al X. said:

Yes I get that point, but is this still the case when you get pass through sales from the US to your home Amazon site?

Sorry, I'm still struggling with this, as we are discussing two different cases in this thread. Let's say you are an author with a TRADE published book, and it sells in a lot of countries. As far as I know, TRADE published authors aren't filing individual returns for each country where their books are sold. The distributors pay whatever sales taxes are due in the country of sale, and the author pays income tax in the country of residence (or where the publisher is based.) I don't see how this would be any different from independent books sold through Amazon, assuming sales are routed through the site in your home country.

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I fixed that for you, Al. I know I've pointed this out to you before, and on more than one occasion. Please don't make me have to do it again.

Most trade-published authors have agents who process payments on behalf of their author-clients and ensure that they have competent advice as far as taxes and accountancy are concerned, so it's not an issue.

In trade publishing, distributors don't pay any taxes on behalf of the authors whose books they distribute. Note that the term "distributor" has a very specific meaning here, and it doesn't mean "Amazon".

Old Hack said:

I fixed that for you, Al. I know I've pointed this out to you before, and on more than one occasion. Please don't make me have to do it again.

Most trade-published authors have agents who process payments on behalf of their author-clients and ensure that they have competent advice as far as taxes and accountancy are concerned, so it's not an issue.

In trade publishing, distributors don't pay any taxes on behalf of the authors whose books they distribute. Note that the term "distributor" has a very specific meaning here, and it doesn't mean "Amazon".

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I guess I'm a little bit confused here. If I produce widgets here in the US, and they are resold Internationally, they are subject to VATs, tariffs, ect... payable on transfer, but not income tax. Books are different?

Al X. said:

Yes I get that point, but is this still the case when you get pass through sales from the US to your home Amazon site?

Sorry, I'm still struggling with this, as we are discussing two different cases in this thread. Let's say you are an author with a traditionally published book, and it sells in a lot of countries. As far as I know, traditionally published authors aren't filing individual returns for each country where their books are sold. The distributors pay whatever sales taxes are due in the country of sale, and the author pays income tax in the country of residence (or where the publisher is based.) I don't see how this would be any different from independent books sold through Amazon, assuming sales are routed through the site in your home country.

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It doesn't sound like you do get my point. Withholding isn't income tax in the sense of filing a return and then paying tax to the people who handle taxes. It is the entity who is paying that does the withholding. So for Amazon, it is Amazon who withholds the money, and Amazon who sends it where it needs to go. For a trade published author, the publishers/agents would handle the withholding. The author then files a return in their home country as usual, but doesn't need to file anywhere else. The whole point of those treaties was to make it so people didn't have to file returns in every country.

There's no "pass through" of sales from one Amazon site to another. Each site follows local laws. When I sell in the US, it's 0% withholding. When I sell in Brazil, it's 15% withholding. I get the payments from each Amazon site separately (minus any money that needs to be withheld). The stats can be viewed centrally, but that doesn't mean the money is handled as one lump.

If you're still confused, I'd suggest reading Amazon's help on the matter. This page is a starting point on withholding:

Al X. said:

I guess I'm a little bit confused here. If I produce widgets here in the US, and they are resold Internationally, they are subject to VATs, tariffs, ect... payable on transfer, but not income tax. Books are different?

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I don't think you understand how trade publishing works, Al.

Books published by UK publishers are sold in the UK; books published by US publishers are sold in the US, and so on. Good agents get their author-clients deals with twenty or more publishers for each title: these deals include home rights, foreign and translation rights, and various subsidiary rights like large print and audio. The publishers sell the books in their home territories, and then pay all due royalties to the representing agent; who then checks that the payment is correct and passes it on to their author, minus the agent's commission. As part of the services they provide their author-clients, most agents also provide advice on tax and accountancy, ensuring their authors pay what's due.

I notice that you refer to Amazon as a distributor, but in trade publishing terms Amazon is a retailer, not a distributor. A distributor is a company that holds stock of a publisher's book, sells those books into bookshops and other retailers, and handles order fulfilment and returns. Amazon only sells trade published books into very specific territories, so I can't usually buy a US book here in the UK. I have to use Amazon UK, which only lists UK editions.

I think I have a handle on it now. Thank you. The above link was informative.