Dumb U.S. tax question

[Becca Mills]

We pay taxes on royalties according to when we received the money from the retailer, not according to when the books actually sold, right? In other words, Amazon paid me for my December 2014 sales in February 2015, so that income gets taxed in 2015 ... right?

[Deano]

Mar 25, 2015 22:44:42 GMT -5 Becca Mills said:

We pay taxes on royalties according to when we received the money from the retailer, not according to when the books actually sold, right? In other words, Amazon paid me for my December 2014 sales in February 2015, so that income gets taxed in 2015 ... right?

Your taxes should be based upon revenue coming into your accounts, so yes that's how it works. My company is UK based and my accounts are handled by a professional accountancy firm. Likewise, VAT ( if you're registered ) is paid quarterly on UK sales based on account-received dates, not the actual sales dates. HMRC look at those accounts, not your KDP dashboard.

[Daniel]

I think Deano has the right of it. I would speak to an accountant to be sure, but my understanding is that individual taxpayers mostly operate on a cash basis and with a fiscal year that matches the calendar year. You report income you received in the calendar year and deduct expenses you paid in the calendar year.

I believe there are a few "accrual" exceptions relating to certain types of investments and maybe a few other things. (This is why I pay a professional to do my taxes.)

[Becca Mills]

Thanks, guys! Yeah, I pay a pro, too. Not because our taxes are complex but because we are both basically incompetent at that stuff and loathe it. After the third year in a row of the IRS sending me money back because I did it wrong, I figured it was time to hand the process over to someone with a brain. Good lord.

But I didn't get a 1099 from Amazon, this year (er ... because I forgot to update our address), so I need to fill in the royalty amount based on deposits in order to get our stuff to the preparer on time. And when I went to do that, I suddenly realized I wasn't sure how it works.

[Daniel]

I could probably do our taxes in a pinch.

I prepare a nice spreadsheet for our accountant with all our expenses and income organized and categorized with document references to back up my figures. Along with that, I give her all of the referenced statements. I type up a document that describes anything unusual that happened during the year (like buying/selling property) and any issues I even think *might* relate to our taxes. When I get back the tax return for review, I go through every single figure to make sure I understand where it came from, and I ask questions if anything isn't clear.

But here's the thing. I hire a tax professional because...
* Tax laws change all the time and I don't want to be responsible for keeping up with them.
* Tax forms are ridiculously confusing. The capital gains worksheet makes me want to barf.
* I have to deal with both our corporate and personal taxes. It takes me long enough just to gather the info necessary for someone ELSE to do them!
* Life is too short to make trouble with the IRS.

[Becca Mills]

Daniel, you 1) have just the right attitude and 2) are so much more meticulous and organized than I will ever be!

I have another reason to use a professional tax-preparer: I think the IRS tends to assume those returns are done correctly. Not that they never audit professionally prepared returns; I'm sure they do. But I bet there's a benefit-of-the-doubt thing going on.

[Daniel]

Mar 26, 2015 22:45:52 GMT -5 Becca Mills said:

I have another reason to use a professional tax-preparer: I think the IRS tends to assume those returns are done correctly. Not that they never audit professionally prepared returns; I'm sure they do. But I bet there's a benefit-of-the-doubt thing going on.

That's possible. A CPA or Enrolled Agent has a level of competence that few once-a-year taxpayers could match, and most pro tax preparers use pro-level software.

I used TurboTax back in the late 80's and early 90's when my taxes were still simple. I assume the program has gotten better since then, but it's still up to the taxpayer to make the correct choices.

[Becca Mills]

Mar 27, 2015 7:42:29 GMT -5 Daniel said:

Mar 26, 2015 22:45:52 GMT -5 Becca Mills said:

I have another reason to use a professional tax-preparer: I think the IRS tends to assume those returns are done correctly. Not that they never audit professionally prepared returns; I'm sure they do. But I bet there's a benefit-of-the-doubt thing going on.

That's possible. A CPA or Enrolled Agent has a level of competence that few once-a-year taxpayers could match, and most pro tax preparers use pro-level software.

I used TurboTax back in the late 80's and early 90's when my taxes were still simple. I assume the program has gotten better since then, but it's still up to the taxpayer to make the correct choices.

Yeah, I don't find those programs easier. They handle the math, but you still have to understand the questions!

[Alan Petersen]

My wife is a CPA and a tax pro for one of big four public accounting firms and we now have someone else handle the income tax stuff. So even CPA's have other CPA's do that work. She is not a fan of Amazon's reports for tax purposes and don't get her started on PayPal. Most folks who do their taxes themselves end up over paying. Every time she's helped a friend or family member they paid too much. And the IRS won't issue send that back unless you request for a refund, so it's worth it to have a professional do your taxes or at least have one double check your work every other year or so and have him/her go back a few years.

[Becca Mills]

LOL. Alan, that CPAs have tax preparers is the ultimate confirmation that we've done the right thing in handing off the whole pile.