Saturday 28 May 2011

No Escaping Tax Payments

In the excitement of publishing my eBook Dancing in the Shadows of Love, I gave no thought to paying tax. Who wants to think of such boring stuff in the soaring joy of seeing your book come to life? 

A few days before my eBook went live on Kindle and Smashwords, award-winning Botswana author Lauri Kubuitsile  asked me what I'm doing about the IRS tax number. I was brought to earth with a plop. 

As I frantically searched the internet for any info on this subject, I found very little information. What I did find is that foreign residents who wish to self-publish in the USA need to sell their soul to the IRS.  

Here's what I've discovered so far:

*A foreign author does need a US Individual Taxpayer Identification Number (ITIN) and you need to fill out a foreign residents form applying for exemption. I’ve read on the net that this can take up to FIVE months!  

*Some retailers require an ITIN number to set up an account - Apple, for instance.  

*Before you apply for an ITIN (which can take 6-10 weeks to be issued), the IRS requires you to include a physical, signed letter or document attached to your application, supplied by the withholding agent (Amazon or Smashwords), on an official Amazon/Smashwords letterhead, showing your name and evidencing that an ITIN is required to make distributions to you during the current tax year that are subject to IRS information reporting or federal tax withholding. 

*Without this letter from the distributor, you cannot complete your W-7 application (required to obtain your ITIN from the IRS), and without the ITIN you cannot submit a W-8 form to the distributor (eg Amazon or Smashwords) that will qualify you for reduced tax withholdings. 

* To make things more complicated, the IRS instructions are that the distributor’s letter, on letterhead, must be signed in ink by a official of the company (meaning no emailing digital versions of the letter required by IRS - it must be delivered via paper mail and be included with the W-7 ITIN application.) And getting this letter is a mission in itself. Smashwords is far more open to helping authors with this process than Amazon, but even there you need to have earned royalties of at least US$10 before they will issue a letter, which you have to apply for in writing, not via email or fax. The whole process is well documented on the Smashwords site (thanks, Mark Coker!)

*Because of that lengthy delay in becoming official with the IRS, I left the royalty payments section blank on the author royalty forms. On Smashwords, I deferred payment of royalties until I have the necessary tax paperwork completed. I couldn’t load my eBook on Barnes and Noble as they only allow that for a person with a US Bank account but, as I’ve applied for Smashwords Premium Catalogue which distributes on my behalf to Barnes and Noble, Apple etc, that's not a major problem. 

For more information go to the US Internal Revenue Service website 

And here’s the link to the application form for an ITIN 

Once you have that you then need to fill out a W8-BEN form.  

As far as receiving payments goes, when I’ve finally got the IRS sorted I’ll be using PAYPAL to receive any funds.  It’s by far the easiest way to get paid. In South Africa, any funds I receive via Paypal have to be deposited within one day into a Reserve Bank allocated financial bank, in South Africa, that is First National Bank. I don’t know what the rules are about receiving funds via Paypal in other countries, so you need to check your country's laws for that.

I’m still finding out myself what the procedure is, so if I come across anything major, I’ll post an update on my blog! 

As I said...there's no escaping death or taxes. I'm just thankful Lauri Kubuitsile asked the right questions, otherwise I might have found myself answering to the dreaded IRS!

ADDENDUM (6 June 2011)

A reputable publishing source, who asked to remain anonymous for professional reasons,  has sent me some further information on the issue of taxes for Non-Resident authors who publish in the USA.

"Yes, it takes up to 6 months for an overseas author to get an ITIN, or the overseas authors simply won't get their royalties. It can be a hassle and a headache, but is a necessary step. The reason LULU does not require an ITIN from overseas authors is because they withold a certain percentage (about 30%) to pay the taxes on behalf of the overseas author. This certainly explains why LULU's prices to publish a print book are so high. And, if you want to sell through their expanded distribution service (Amazon, etc.), you have to ITIN. Imagine that. So, there really is no way around applying for and getting an ITIN unless you want to fork over the 30% of your royalties to the US government (when your taxes probably wouldn't even amount to that, anyway). And, unfortunately, it takes 6 months to get one."


"You get a business license in the US. You can choose any state you wish (Nevada has the lowest taxes, so that's a good choice) and apply for a business license in that state.  If, for a specific book, you're 
donating all the royalties to a charity, you can apply for a non-profit organization license and none of the taxes are applied to your other books' royalties or affect your taxes in any way. You will get a business license number at this point, when all of that is completed. When you have that number, you can then apply for an ITIN through your business, and guess what? This can all be done online with no signed-in-ink forms and does not take very long to get. Since you're applying for it as a business, they aren't as picky as if you're just an individual.  However, I think there's a yearly fee for a business license.

The easiest thing to do may be to accept paper cheques (or PayPal) and let the IRS take the 30% for taxes."

ADDENDUM 2 (22 November 2011)

Amazon Direct Publishing has finally put up some details about paying tax for non-US resident  authors. You find out what Amazon Direct Publishing has to say about tax payments for non US resident authors here

ADDENDUM 3 (4 August 2012)

Here's a helpful blog post on tax payments with well set out steps to follow on the Romance Writers Organisation of South Africa website written in February 2012 by romance author Romy Sommer. You can also find the article on Marketing for Romance Writers.

ADDENDUM 4 (4 November 2012)

I had an interesting chat with South African YA author Joanne McGregor at the recent Sanlam 2012 Youth Literature Award  ceremony at Emoyeni. Joanne had previously contacted me about getting a tax number for a non-US resident author and kindly shared with me a very detailed blog post on a short cut to getting that dratted US tax number.

Here is the excellent and detailed blog post by Irish author CATHERINE RYAN HOWARD on an easier way to get a US tax number for Non US resident authors.

The many comments on Catherine's blog are worth reading too. 

Joanne followed these steps and said it took her less than an hour to get her US tax number via Skype.

Any further info I find out about taxes and non-resident authors I'll continue to add here.

DISCLAIMER: I must be more brainwashed about tax after 20 years with my hubby Dr Beric Croome than I realised. My idea for this tax article was all my own - a middle of the night brainstorm! - and it's all my own research too (one doesn't get free advice from tax lawyers, I'm afraid, not even when you're married to one!!!) :)

Free Image from ClipArt


Misha Gerrick said...

Oh wow! Thanks for highlighting this. I might have completely missed it too.


Lauri said...

I might have asked the question but I'm still lost. My plan is to follow behind you on the path where you already cleared the snakes. Ha!!

Frances Garrood said...

That's taxes sorted. But no need to think about death yet, especially at this exciting time, Judy!

(Actually, years ago I had a tax experience. We received one of those 'there's something you're not telling us, but we're not telling you what it is' letters from the tax people. It turned out to be a story - ONE story - that I'd forgotten to declare!)

Hilary said...

Gosh Judy - that must be a bolt out of hell .. thank goodness you were able to work your way through .. or start the process.

Well done for writing about it - so everyone can see what's going on ..

and Frances' comment reminds us to keep an inventory of everything .. we never know when it may be needed.

I hope you can find some peace and quiet this weekend .. cheers Hilary

CA Heaven said...

That Amazon tax hazzle doesn't look like something I wanna do. I probably just publish my so-called novel on the internet for free. Then there's no tax, I guess ... but first I need to complete that damned novel.

You have a tax expert near you, Judy. I hope he can guide you quickly through the jungle of rules >:)

Cold As Heaven

Helen Ginger said...

Good gracious! That sounds soooo unnecessarily complicated. Wow. The longer at group or arm of the government has been in place, the more complicated and convoluted it becomes - it seems to me. Seriously. It's nuts.

Judith Mercado said...

Oh dear, talk about rain on your parade. But, as usual,you handle it with grace, thinking of how to contribute to your writing community's knowledge. Good luck on this.

Claire Robyns said...

Oh, my, that sounds like a nightmare. I hate paperwork, especially when it's actually paper and not digital.
This has got me wondering about non self-published, though, and what the deal is. So far, HQN hasn't taken off 30% tax on my royalties and have never made any mention of it. One would think the same rules would apply across the board - I hope I'm not going to be hit at the end of the US tax year.

Judy Croome | @judy_croome said...

MISHA: I nearly did, but luckily Lauri woke me up! It’s something to consider earlier rather than later, too.

LAURI: Haha! Luckily snakes don’t scare me (eeek!) Will keep you up-to-date with any further developments!

FRANCES: Maybe that should have been the taxes will be the death of me??? (Only kidding!) And LOL on your HMRS letter story! I’ve seen from Husband’s blog that UK has one of the most complicated tax systems around, but it seems the Taxman has his eye on the smallest sparrow (or story!)

HILARY: Not much P+Q this weekend Hilary. And, yes, the long reach of revenue services the world over seem to make it an imperative to keep track of the most insignificant things!

COLD: I don’t wanna do it either, but I’m in it now (better be prepared for the millions of dollars of royalties – haha!) And my resident tax expert said he was too busy with client stuff to save me…somehow I couldn’t convince him that I’m his most important client because one day he could *retire* off my (taxed) royalties!! :) (And carry on writing that novel – we want to see it finis and klaar, as we say here!)

HELEN: Bureaucracy is as complicated where ever we live! For a relatively young country SA’s tax laws are just as convoluted. And now I have to face the IRS as well...ouch!

JUDITH: It was quite a dampner, I must admit! I’m going to need to update this post as I find ourt more info, but what I noticed was that there was hardly anything out there for Non-US authors. It was really a mission to try and understand. So this post is really just a “sit-up-and-beware” kind of thing!

CLAIRE: I agree! I’ve got so spoiled with the ease of digital that “real” paperwork is such a mission to face. Maybe because Carina is a well-established publisher they’ve got all the right checks & balances in place? Or maybe there’s a double tax agreement between US & UK? May be worth your while just checking what your tax on royalty situation is; you don’t want to be hit by an unexpected tax bill.

Paula RC said...

This is the one thing I love about the internet and blogging, you find out about things you wouldn't have found out about until it was too late. Ewriters make it all sound so easier when uploading their books, and talking about all the sales they've made, but not about all the other things you need to know. Thank you for drawing our attention to this.

P.S I reposted my comment to removing typos.

Judy Croome | @judy_croome said...

JARMARA: Yes, the internet is a marvellous way of sharing information about surprising gremlins on the road to getting our stories to our readers! I'm glad you found the post useful.

Yvonne Osborne said...

We should just consider taxes as payment for the privilege of living in an organized society. Thanks for the reminder of our civic duty!

A Cuban In London said...

"There's no escaping death or taxes."

That opening sentence should be put on a T-shirt.

Yes, taxes is the reality check that most artists and authors have to contend with. It's enough to kill off your creativity. Unless you get creative with the taxman. :-) Not advisable, though.

Greetings from London.

Anne R. Allen said...

I apologize on behalf of my backward country. Old laws seem unable to deal with a global economy. I'm so sorry you have to go through this. But you're paving the way for a lot of people (and getting your name out there.) A small silver lining, maybe?

Judy Croome | @judy_croome said...

YVONNE: My husband (a tax advocate) would heartily agree with you. One of his mantras is that for every cent of tax someone avoids, others have to pay for it.

CUBAN: Ha!Ha! I may even have seen it on a T-shirt somewhere! And, when your other half is a tax man, it's definitely not advisable to get creative when paying your taxes...

ANNE: I picked up from husband's tweets that the UK has started an "Office of Tax Simplification" - because their many tax laws are so complicated! And, yes, I think lots of countries legal systems, young and old, are struggling with the rules of a global economy.

Anonymous said...

Wow! I had no idea it was such a pain! And I thought we here in the US were hassled! I have no problem with paying taxes, but I don't see the point in making it so complicated and ridiculous.

Anonymous said...

To the anonymous publishing source: LULU (maybe because I signed up with the .com instead of the .it, which is my country of residence) is the one who, when they received my W8BEN without an ITIN, told me I needed the W7 and enclosed the letter necessary to request it - Smashwords didn't say a word about it, and won't issue that letter until I reach 100$ of royalties...
My application was rejected because I didn't complete all the fields (and it took them 3 months and a half to tell me that), they didn't mention the fact that the letter was printed from the PC. Now I have a laser color printer, hopefully this time the IRS will give me an ITIN. I'll know in 3 months 1/2. The royalty payments haven't reached the minimum on either site yet anyway. Amazon doesn't pay via Paypal, only by check, btw. And I don't know where I should send my W8BEN for my Kindle editions, although I won't send it until I get that ITIN...

Judy Croome | @judy_croome said...

JOLEENE: I also feel paying (fair!) taxes is acceptable, but I do wish that (wherever in the world we are) our tax collecting agencies would just make it a bit easier for us to do our civic duty! :)

BARB: Thanks for comment. It's raised some more questions for me which I must double check.

Sandy said...

Any foreign author dealing with Amazon needs to read this thread:

Unknown said...

Hey EVERYONE. Take a deep breath. You don't need an ITIN AT ALL.
I live in Canada and my friend lives in Britain. AND, if you just call your US embassy on the phone and tell them that you are the
'SOUL PROPRIETOR' as an author who sells books, then they have to give you a number over the phone. It's an EIN number and it's for the IRS to track your taxes. Amazon accepts this number. I know because they took the hold off of my cash. Don't believe all that BS about having to have a company or any employees to get an EIN. I timed my phone call and I had the number written down on a post-it note within 11 minutes. That's it, that's all. Call your local US consulate or the nearest one to you and say:
"I am the soul proprietor and I sell a product in your country (US) and I want to pay you taxes. I need an EIN number please." After that, they will walk you through some simple questions and just tell them that you son't have any employees, but you may hire some at a LATER DATE. Anyway, the lady I spoke to in Seattle was awesome.
Technically, it is a business because you are creating and selling a product. Amazon is just your distributor. If you happen to get someone on the phone that tells you otherwise to anything I've said here, they don't know what they are talking about, so just call back and get someone else. In fact save yourself the headache and just call the US embassy in Seattle Washington. Have a great day and stop wasting your valuable time and money. 11 minutes folks!!

Judy Croome | @judy_croome said...

Anonymous 1:55 - thanks for providing this info. If this is as simple as it sounds it'll make registering for tax in the USA a whole easier. I will be contacting the USA embassy in South Africa to see if it works as well here. Non-US foreign residents also need to check whether there are any double taxation agreements in place with their country & the USA, because they cam then apply for exemption. But of course we need to be registered to pay tax in the USA first. I'll post any information I find out from the USA Embassy in Pretoria here, as soon as I have details.

Judy Croome | @judy_croome said...

UPDATE ON Comment above from Anonymous 1:55.

I emailed the US Consulate in South Africa several times & received a "read receipt" for my email, but no response to my query. Finally, after yet another email, I got blown off with a short, cold & unhelpful email only providing me with the link to the IRS website in the USA. Doesn't augur well for any help from the American Diplomats here in South Africa! But never fear...I'm still on the job. I'm following up and will revert with any new info I obtain.

Bruno said...

Hello Judy,

I'm a fellow South African and like you, want to publish my novel through US distributors. I'd just like to thank you and your readers for lots of useful information. I'd also like to know, if you don't mind, how it panned out getting your ITIN / EIN numbers and whether you eventually had any joy from the local US embassy?


Judy Croome | @judy_croome said...

Glad you found the post useful, Bruno. I'll try to update as I find out more.

The local US COnsulate did contact me, but it was the day after my Dad died and, since then, 2012 has gone awry, so I haven't got back to them yet.

I've done nothing about getting myself registered for tax in the US as yet - high on my list of things to do if 2012 would just slow down for a moment or two! I hope to get the process moving again *before* I'm arrested for tax evasion!! :) (My husband the taxman will not be impressed if that happens!)

Bruno said...

Thanks a lot for replying and sorry to hear about the terrible year. Sometimes everything just seems to fall apart at the same time, doesn't it? :(

As far as I understand the issue of taxation it seems that Amazon / US retailer will simply withhold 30% of your earnings, and transfer the balance. But then SARS will take another bite out of the money on this side, since you don't have proof that you have already paid for your US tax by default. Paying tax once already makes me sad, paying it twice will make me livid. :)

Some people seem to advise just doing it through a company and getting a EIN (like unknown above) but then I'm unsure of whether VAT on sales will be due and whether SARS will levy a dividend tax on money taken out of the business ... sigh.

More research beckons ...

Thanks for your reply. If I do find a fellow SA'er that has succeeded, I will let you know.

Judy Croome | @judy_croome said...

Yes Bruno you're correct - the main problem with not getting the exemption from the US IRS is the double taxation one will pay on any income. Without the exemption forms completed for the IRS, the 30% has been automatically deducted for IRS by your US distributor, then you'll still have to pay SARS here in SA.

But, from what I understand you can, at a later stage try and recover the 30% from IRS once you've registered as a non-Resident and have the necessary exemption because of the DTA's between South Africa and USA. But whether that process would be worth the effort and the money is another matter!

I'll have to take some time to get this tax niggle finalised!

Jo said...

It was lovely meeting you in person, Judy, glad I could repay your kindness :)

What I love about the writers is that even though we work alone, we're a very generous community. We share tips and short-cuts and what we've learned.
I hope you get your EIN as quickly as I did, Judy, and thanks again to Catherine Caffeinated. I've signed up for comment updates to that blog and can confirm that almost every day there's another comment from a grateful writer almost weeping with joy at finding the info. The comments are worth reading carefully, because they answer NB questions like: what is my country's code? What is the witholding rate for my country? Benefit from what others have found out before yoou and you won't need to reinvent that taxing wheel!
Joanne Macgregor

Judy Croome | @judy_croome said...

Jo, giving that link to Catherine's detailed blog post repaid whatever little help I gave you tenfold! It's a brilliant blog post and it's such a relief to know the whole procedure can be simplified...even here from South Africa!

Good luck with NaNoWriMo - hope it goes well for you.