What are our tax responsibilities here?

[DavidFarrell]

As writers, what are our tax responsibilities here? I Know we have to pay federal and state income tax. I also know we need to pay self employment taxes. But what about sales taxes? I was reading something about that;do we have to pay state sales taxes as well (if our state requires) on content sold? Is it possible to pass this on to the consumer? What do you writers do in this regard?

[Celeste Stewart]

Federal, state, and self-employment taxes yes. Sales taxes, no.

Here's some information about how taxes for copyright licensing are generally handled: http://patentax.com/library/biziptax.html (they're treated as ordinary income). I'm no tax expert, but I don't think the government can have it both ways: income + sales tax. In a way, I'd prefer a sales tax because then I'd collect it from the customer and pay it out of those funds rather than as a huge percentage of my income .

Anyhow, check with your state's department of equalization or your tax professional to be sure.

[Celeste Stewart]

Also, remember, customers are responsible for paying sales taxes when applicable. Merchants may be required to collect it and pay it on their behalf in many cases, but the taxes are the customer's responsibility.

[jadedragon]

Remember that the transaction between the customer and CC and between CC and the writer occurs in Canada.

[jellygator]

Remember that the transaction between the customer and CC and between CC and the writer occurs in Canada.

Now, that's interesting. Have a short summary of how that affects our U.S. taxes or will I need to look it up?

[Celeste Stewart]

It doesn't matter that CC is in Canada. The IRS expects us to claim our income from all sources around the world. It's ordinary income subject to federal, state, and self-employment taxes for us US writers.

I have a client in Romania that had me fill out a form that proves I pay US taxes so that she wouldn't have to withhold Romanian taxes on my behalf. CC doesn't withhold any taxes, so you don't have to worry about trying to get a refund from the Canadian government or anything like that.

[jadedragon]

My comment has to do with Sales Taxes. For American writers (and others) you need to report your net earnings on your taxes.

[davidscript]

This is an interesting discussion. I wish someone with tax expertise would write a brief article about taxes specifically for freelance writers. Or does anyone know of a previous thread here on the subject?

[Celeste Stewart]

Here's an older article I found on the Web that gives a little history into the topic. It's really old though, so keep that in mind as the tax laws may have changed:
http://www.forwriters.com/taxes.html

[Judith]

Freelance writers are independent contractors as far as US Tax Law is concerned. We are required to report our income, pay income tax and self-employment tax, which is our contribution to our Social Security. PayPal is great when it comes to tax time. You can print it out your payments report, give it to your tax person, and they will do the rest.

[Tianna]

Paying the social security parts sucks! Most people don't realize that in a normal job the employer pays have the Social Security. It's quite the eye opener when you're paying all of it yourself. I put about 1/3 of earnings into savings for tax time. That usually covers the fed & state taxes for me, with just a bit left over.

[Celeste Stewart]

Yep. And don't forget insurance costs if you're completely on your own -- we're paying $18,000 for health insurance this year. Ouch!

[Tianna]

You really don't want to get me started on health insurance! I can rant and rave about that for days! lol

[Celeste Stewart]

Me too

[davidscript]

Does CC require us to fill out a w-9? And if so, is there a limited amount we can accumulate before we're required to submit one? Thanks for your replies in advance.