If you have sold your textbooks in foreign markets, foreign publishers may withhold foreign taxes at the source before the money is paid to your agent and before it is paid to you. If they are doing that, and you earned, for example, $10,000 in a foreign country, 10 percent, or $1,000, will have been withheld from your payment. Your agent would have received $9,000, and withheld his 15 percent commission on the $10,000 you actually earned. So you would end up getting about $7,500.
Tax tips for authors: Learn how your agent is reporting your writing income
One of the things that can affect your tax returns is the income that you report from writing in the form of royalties, advances, etc. Many of you will have literary agents and those agents will report to you what you’ve earned at the end of a year on a 1099. While the IRS says that agencies are supposed to report to their clients the gross income amount that was received, most agencies report on the net basis, and the IRS doesn’t seem to be aware of, or care about that. But as an author, you really need to know on what basis your agent is reporting income because it could potentially affect your tax return.
Q&A: What are the tax advantages and disadvantages of a textbook author setting up an incorporation rather than operating as a ‘sole proprietor’?
Q: “What are the tax advantages and disadvantages of a textbook author setting up an incorporation rather than operating as a ‘sole proprietor’?”
A: Stan Gibilisco, author of several textbooks including Geometry Demystified:
“I tried this when I lived in Hawaii and discovered, to my horror, that my royalty income was subject not only to their income tax, but to their ‘sales’ tax as well (they call it a general excise tax). I figured that if I formed a Nevada corporation and had all my income channeled into it, and then became an employee of that corporation, the royalty income would not be subject to that onerous tax. It was a beautiful theory, but, like so many theories, did not work. The legislators in Hawaii had thought of that before I did and the law was airtight. Love it or leave it. I left.