If I am doing a booksigning at a retail place (bookstore or other shop) what percentage of my profit must I share?
Do I have to charge sales tax? Do I have to keep track of the taxes?
First, let me clarify that my advice should never replace that of a CPA. Consult a professional in your area with your individual concerns. Most Accountants will offer a free consultation. Please know that all income received from book sales are subject to Federal Income Tax, and probably (depending on where you reside) State Income Tax as well.
You didn’t think about that part of being an author? Oopsie, best call the CPA immediately, if not sooner.
Authors are business professionals. They are operating a business and providing a service. Seek the advice of someone who can explain when you should form an LLC or an INC. In the beginning you can report your earnings without much difficulty when filing annual income taxes. However, if you wish to accept credit cards using those fancy cell-phone scanning devices, you will need a business account in which to deposit the funds. The bank will require an FEIN number. You will also need a business account for PayPal transactions.
As an aside, I do not accept credit card payments, the fees eat into a thin profit margin.
In order to open a business account you will need to visit the local Secretary of State website and open an account. Expect to invest approximately $200.00 for proper documentation, even if you do the paperwork yourself. If you live in the city, you may also need a business license; say goodbye to another $100.00. Each require an annual filing fee which is smaller than the initial investment. A CPA can do this for you, but it will cost you approximately a thousand dollars total. Before you make that investment please send me a personal message through my website for a response based on your individual need.
Question One:What percentage of profit must I share?
If you are traditionally published, your publisher takes care of this by entering into an agreement with book distributors such as Baker & Taylor or Ingram’s. I strongly discourage authors from entering into consignment agreements with business owners because in these economic times a business can be here today and gone tomorrow. If you insist upon placing books in someone else’s store, do so only after both have a signed a written consignment contract. Most stores expect to receive 30 to 50% of the retail price of your book.
I will pause while veteran authors laugh. Go ahead, we’ll wait.
Veteran authors are painfully aware that no one receives 30-50% of the retail price. As the author you should kindly explain this to those kind enough to shelve your book. The printer gets paid first, then the distributor takes a cut; the publisher takes a cut; the book must be shipped (and possibly returned); and that leaves very little (12-15% if you are lucky) for the author, AND the bookseller.
Sales Tax: When money changes hands a “legal sale” transpires. You, the author, are responsible for collecting and then reporting this sale (rate and reporting deadline vary depending per state) to the Department of Revenue. Failure to report sales will result in hefty, compounded-daily fees. Educate yourself on this process. Authors require a sales-tax id number and a calendar reminder to report sales each month. Sales must be reported, even if they are zero, every month. In Georgia, failure to report a “zero sale” month results in a $ 50.00 fine.
When a bookstore makes a sale they collect, and report, that sale to the Department of Revenue. No action is required from you regarding sales tax.
When an online distributor sells your book, either hardcopy or electronic copy, they collect sales tax. No action is required from you regarding sales tax.
Federal Tax: Royalty checks both from your publisher or any other seller, do not include a deduction for Federal Income Tax. If book sales exceed the IRS limit, your publisher, who is acting as your employer, will send a 1099. If not, you will report this income as “miscellaneous.” If income from book sales is a large amount, it might be wise to report income quarterly and pay Income tax quarterly versus writing a hefty check in April.
Record keeping:Emerging Authors will realize that having an account of every sale and expense is imperative. Most word processing programs include a spreadsheet such as Excel. Here you will log every expense from paper to postage stamps; number of books ordered to packaging supplies. You will also log sales, returns and hopefully royalties.
Thank you for the question. I hope my response helps.
Renea Winchester is an award-winning author. She leads marketing workshops for emerging authors and is available to speak to groups as well as personalized individual consultations. Visit her at www.reneawinchester.com