How to tax plan (US) when starting to self-publish on Amazon Kindle?
July 30, 2023 1:34 PM Subscribe
I'm slowly working up the courage to publish my first Amazon Kindle ebook, and there may be more in the pipeline. Odds are I will earn nothing, or next to nothing. But what if I'm the next Chuck Tingle? (To be very clear, I am not C.T. and could never be.) What to do about taxes? You are not my tax lawyer or financial advisor.
I am in the US.
I filled out the "tax interview" on Kindle Direct (https://account.kdp.amazon.com), and it says the amount they'll withhold is $0.
I know they're not promising that the amount I should withhold is $0. And you also can't promise me that, because you're not my tax advisor.
But I don't know what I said in that interview that made Amazon think $0 was the right amount?
I have a regular W-2 job, where HR doesn't ever seem to think $0 is the right amount to withhold after they're done with their tax interview.
Of course I will report all income to the IRS, as I must.
At the moment, I'll be surprised if I earn $10 on this self-publishing endeavor.
But what if I'm sitting on a breakout hit that might earn $100 or $1,000 or more? Especially since I do hope to continue publishing more once I get rolling.
I just don't want to get a nasty surprise like that I should have been making quarterly self-employment payments, or should have hired a tax adviser sooner, or something. Is there some sort of threshold?
I am in the US.
I filled out the "tax interview" on Kindle Direct (https://account.kdp.amazon.com), and it says the amount they'll withhold is $0.
I know they're not promising that the amount I should withhold is $0. And you also can't promise me that, because you're not my tax advisor.
But I don't know what I said in that interview that made Amazon think $0 was the right amount?
I have a regular W-2 job, where HR doesn't ever seem to think $0 is the right amount to withhold after they're done with their tax interview.
Of course I will report all income to the IRS, as I must.
At the moment, I'll be surprised if I earn $10 on this self-publishing endeavor.
But what if I'm sitting on a breakout hit that might earn $100 or $1,000 or more? Especially since I do hope to continue publishing more once I get rolling.
I just don't want to get a nasty surprise like that I should have been making quarterly self-employment payments, or should have hired a tax adviser sooner, or something. Is there some sort of threshold?
Best answer: What you need to do first is to figure out your tax bracket for the last dollar earned. For example if you are single and earn 41,776 to $89,075 from your job, each extra dollar gets taxed at 22%. For each dollar earned from royalties, you will owe the feds 22cents. When your total income exceeds $89085, each extra dollar gets taxed at 25% and so on. So as you get the royalty checks from Amazon, set aside the money that you will need to pay taxes. (Remember there will probably be state taxes too.)
There is no penalty for underpayment if your withholding is 90% of the taxes owed or 100% of the amount owed last year (in case you had surprise income this year) or if the amount is under $1000. So, you can safely wait until you see that your royalties are taking off (we are talking thousands of dollars in income since you don't need to worry if the taxes owed on the royalties are less than $1000). Then the next year you will want to either increase your withholding with your employer or start paying estimated quarterly taxes to make sure that you pay in enough during the year to cover the taxes owed.
If you use software for managing your taxes, it is simple to add a schedule C for your book royalties and the software should be able to take care of it easily.
posted by metahawk at 1:52 PM on July 30, 2023 [4 favorites]
There is no penalty for underpayment if your withholding is 90% of the taxes owed or 100% of the amount owed last year (in case you had surprise income this year) or if the amount is under $1000. So, you can safely wait until you see that your royalties are taking off (we are talking thousands of dollars in income since you don't need to worry if the taxes owed on the royalties are less than $1000). Then the next year you will want to either increase your withholding with your employer or start paying estimated quarterly taxes to make sure that you pay in enough during the year to cover the taxes owed.
If you use software for managing your taxes, it is simple to add a schedule C for your book royalties and the software should be able to take care of it easily.
posted by metahawk at 1:52 PM on July 30, 2023 [4 favorites]
Best answer: You will get a 1099-MISC from Amazon. You can also check income through the year at the Kindle site so you are not surprised.
A small discrepancy in withholding vs. taxes is not a big deal. If you're starting to get income over $3000, thus taxes of ~ $1000, you could increase the withholding at your day job.
posted by zompist at 2:10 PM on July 30, 2023 [3 favorites]
A small discrepancy in withholding vs. taxes is not a big deal. If you're starting to get income over $3000, thus taxes of ~ $1000, you could increase the withholding at your day job.
posted by zompist at 2:10 PM on July 30, 2023 [3 favorites]
Best answer: > tax bracket
> Schedule C
Keep in mind that self-employment tax is a separate tax (roughly 15%) in addition to your "usual" income tax. Do a run-through of Schedule C (and Schedule SE) to get a sense of how it works (it sounds more difficult than it is once you try it).
Fill out the Self-Employment Tax Worksheet. This will help you see the numbers at which you need to start doing estimated payments to avoid penalties.
The key is to keep your total witholdings + payments close to your total tax amount.
> state taxes
Yes! Some states can have special rules that seem idiosyncratic, and aggressive enforcement boards...
And do not forget LOCAL taxes and licenses! I know a few people who got really dinged by localities that are not as gracious as the IRS.
posted by Sockin'inthefreeworld at 2:38 PM on July 30, 2023 [2 favorites]
> Schedule C
Keep in mind that self-employment tax is a separate tax (roughly 15%) in addition to your "usual" income tax. Do a run-through of Schedule C (and Schedule SE) to get a sense of how it works (it sounds more difficult than it is once you try it).
Fill out the Self-Employment Tax Worksheet. This will help you see the numbers at which you need to start doing estimated payments to avoid penalties.
The key is to keep your total witholdings + payments close to your total tax amount.
> state taxes
Yes! Some states can have special rules that seem idiosyncratic, and aggressive enforcement boards...
And do not forget LOCAL taxes and licenses! I know a few people who got really dinged by localities that are not as gracious as the IRS.
posted by Sockin'inthefreeworld at 2:38 PM on July 30, 2023 [2 favorites]
But I don't know what I said in that interview that made Amazon think $0 was the right amount?
I have a regular W-2 job, where HR doesn't ever seem to think $0 is the right amount to withhold after they're done with their tax interview.
Without actually filling out that "tax interview" Amazon form - as a self-published writer you are technically running an independent business as a self-employed person. Meaning it's not in any way Amazon's responsibility to withhold any taxes from what they pay you, so they don't.
Whereas your W2 employer is required by law to withhold a portion of your gross wages to apply towards your personal income tax owed (Current Tax Payment Act of 1943), AND is required to both pay a percentage themselves towards Social Security and Medicare and withhold your share of SS and Medicare taxes. (The 15% self-employment tax mentioned above is the percentage of your income that goes to SS & Medicare - when you are a W2 employee your employer becomes responsible for half of that (7 1/2 %) and the rest comes out of your gross income.)
But so yeah, you should (barring some fairly rare situations) never have $0 withholding on a W2 job, but for any source of income where you are not an actual employee you will rarely have taxes withheld.
posted by soundguy99 at 3:19 PM on July 30, 2023 [1 favorite]
I have a regular W-2 job, where HR doesn't ever seem to think $0 is the right amount to withhold after they're done with their tax interview.
Without actually filling out that "tax interview" Amazon form - as a self-published writer you are technically running an independent business as a self-employed person. Meaning it's not in any way Amazon's responsibility to withhold any taxes from what they pay you, so they don't.
Whereas your W2 employer is required by law to withhold a portion of your gross wages to apply towards your personal income tax owed (Current Tax Payment Act of 1943), AND is required to both pay a percentage themselves towards Social Security and Medicare and withhold your share of SS and Medicare taxes. (The 15% self-employment tax mentioned above is the percentage of your income that goes to SS & Medicare - when you are a W2 employee your employer becomes responsible for half of that (7 1/2 %) and the rest comes out of your gross income.)
But so yeah, you should (barring some fairly rare situations) never have $0 withholding on a W2 job, but for any source of income where you are not an actual employee you will rarely have taxes withheld.
posted by soundguy99 at 3:19 PM on July 30, 2023 [1 favorite]
Don't worry about quarterly payments. As it happens, IRS penalties are surprisingly reasonable! There are a few classes of penalties, but even the worst ones top out at about 20% of the amount owed, but many others are about the rate of inflation (or less!).
That said, for any non-W2 income, I would mentally consider "50%" of it to be owed in taxes, which is a conservative overstimate.
So, if your book is a runaway success, and you make $1 Million Dollars (/Dr. Evil) remember that perhaps $500k goes to the IRS.
posted by soylent00FF00 at 3:41 PM on July 30, 2023 [1 favorite]
That said, for any non-W2 income, I would mentally consider "50%" of it to be owed in taxes, which is a conservative overstimate.
So, if your book is a runaway success, and you make $1 Million Dollars (/Dr. Evil) remember that perhaps $500k goes to the IRS.
posted by soylent00FF00 at 3:41 PM on July 30, 2023 [1 favorite]
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If you end up earning some money, you can hire a CPA to help you and they will know what to do in terms of legality, withholdings, etc. They see situations like this all the time. Best wishes for your success—I hope you are sitting on a massive breakout hit!
posted by corey flood at 1:40 PM on July 30, 2023 [1 favorite]