I am nearly done writing my first book. My curiosity got the best of me so I started looking into what I would owe in taxes once it is for sale. This seemed simple enough. I am an auto-entrepreneur, which is similar to a sole-proprietor in the USA but with many limits.
This book is going to be available as a paperback and ebook. Business activities are labeled as either commercial or service. Selling a paperback book is a commercial activity so I will owe 13% in taxes. The ebook is a service activity and taxed at 20.5%. If I were to give the book to a publisher then my royalties would be taxed about 50%. I am not going to give the book to a publisher (at least, not yet), but I am worried about Amazon calling author commissions “royalty” payments.
I am not complaining about the taxes here. Taxes are low for auto-entrepreneurs, especially considering all the benefits we receive. It is the easiest type of business to start and test business ideas. What is bothering me is that the same item is taxed at different percentages, which means that I need to keep different sets of accounting records for each type of activity.
I do not understand why selling an ebook is not considered a commercial activity. Some people say it is because there are no costs associated with creating and selling a digital product. An ebook takes the same amount of time to create and distribution costs are high. Sales through Amazon, iBookstore and Barnes and Noble, are charged 30% in distribution fees and I must pay 20.5% in taxes, leaving me with 49.5% of profit. I am also limited to making 32,000 euros per year on selling ebooks. This limit does not allow us to make deductions, so the 30% in distribution fees is included. If the ebook sells for 9.95, I can only sell 273 per month. The maximum revenue I can bring in between service and commercial activities is 81,500 euros per year (of course, no deductions are allowed), so the number of ebooks I can sell may be decreased if I sell too many paperbacks.
Amazon will print the physical book on demand so I do not have to worry about inventory or shipping expenses. It will be printed and shipped within 24 hours and qualify for their free shipping offers. Depending on how many pages this book ends up being, their percent of the retail price fluctuations. So far it is looking to be 70 to 75% in fees and 13% in taxes. If the book sells for 14.95, I would receive 1.79 to 2.55 euros. Again, I am not able to deduct fees and I can only sell the retail amount of 81,500 euros for both service and commercial activities combined.
I will be uploading my ebook and paperback versions on Amazon so they can sell it on their website. Once a month I will receive my share of the profit directly into my bank account. One thing that scares me is that they call my portion “royalties.” Instead of owing 20.5% or 13% in taxes, it could be 50% or more. If the paperback is $14.95, then $11.21 goes to Amazon and $7.48 goes to taxes. This means I will pay out $18.69 for a book that I sold at 14.95. Yikes! No matter how much I sell the book for, I would always be the red because both Amazon and les Impots calculate charges by the percent of retail price.
A traditional publisher takes the author’s book and is responsible for marketing and selling it. The author then receives a small commission for each book that is sold in the form of a royalty payment. The author is not responsible for the costs of production – the biggest difference between a traditional publisher and Amazon. If I received a royalty payment of $1 per book, then I would be taxed on the $1, not on the selling price of the book.
So here is my dilemma and I must figure it out soon. What do I do about Amazon calling its commission for authors “royalties”? There are thousands of books on Amazon.fr, so I have to imagine that individual authors publishing in France are not making negative profits. And if I sell too many books, which statute should I change to? I have not crunched the numbers yet, but I am sure that switching to a corporation with higher taxes will not result in me paying much more because I will be able to make significant deductions. With fees that are 50 to 75% of profit, I will have lots of deductions to make.