When it comes to taxation rules, most authors don’t know what to do. Myself included. In this article, I will explore what writers can expect come income tax time, and what is involved.
I will take this ride right along with you and learn the process step-by-step.
Hang on for a wild ride.
DOES IT MATTER WHAT COUNTRY YOU LIVE IN?
Yes, it does. Every country has a different tax law when it comes to authors. If you live in the United States, you will be taxed on any income that you make from your writing.
If you live in Canada like I do, you will be taxed on the income you make from writing, both in your own country and abroad.
For example, if the majority of my sales are through Amazon.com, then I will be taxed for making money in the US, and then again in Canada.
Because of that, Canada and the US have a tax treaty. It ensures that residents of US and Canada are not double taxed on the income they make. That includes authors, especially those that sell online.
In order to qualify for this tax treaty, you must have a W-8Ben form if you are a sole proprietor like an author.
For example, I made money in the United States through Amazon KDP, but I don’t live in the US. Under normal circumstances, if I were a US resident, I would just be taxed on the income I get from my writing.
However, because I’m a Canadian and therefore subject to taxation in Canada, I would be taxed in both countries if I did not fill out a W-8Ben form that exempts me of that double tax.
In fact, in order to have an Amazon author account, I must complete the W-8Ben form in order to receive any funds. It’s a built-in safeguard when creating an Amazon account.
I also had to do this with Smashwords.
Also, doing business in the United States must be legal. In order to legally receive funds you must have a social insurance number.
Because I don’t live in the United States, I can’t get a United States social insurance number. I must apply for an EIN(Employer Identification Number). That just makes it legal to do business in the US.
That goes hand-in-hand with a W-8Ben and the tax treaty between Canada and US.
BUSINESS OR PERSONAL
An author is considered a sole proprietor. Because authors work for themselves they are not considered a business.
I don’t need to get a business license because my name is my business.
If I were to form a publishing company that publishes other people’s books, I would have to be considered a business and therefore get a business license.
But because I am a sole proprietor, that is not the case.
ALLOWABLE AUTHOR DEDUCTIONS
Every year, authors must pay income tax like everyone else. However, because they are a sole proprietorship, and considered self-employed, they are allowed deductions.
As a writer you can claim the costs associated with writing. Here are some examples of things that you can claim:
- Cost of a new computer
- Cost of the Internet
- Software for your computer
- Your phone line
- Printer/paper/copier costs
- Computer supplies
- Meals, mileage associated with writing
- Home Office Expenses (% of heating/power/mtg)
CONCLUSION
Taxation rules for authors are pretty much the same as anyone else. You must always record income no matter how much you make as an author, even if that’s only $500 a year.
Depending on the country you live in, even though you have to record your income, you may not have to pay any income tax on that amount depending on if it’s under the allowable limit for self-employment.
As a self-employed person you must keep your receipts and proof that you’ve spent money toward your writing business so that you can claim it on income tax.
There are other aspects of being an author that are different than those who work for an employer, but all in all, it’s worth it just to be a writer.
At least it is for me!
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Author Kathleen Morris
Kathleen Morris is a successful published author, blogger, and YouTuber. She enjoys writing about things she’s passionate about and making a difference in the world.