At WestSky, we help authors navigate more than just publishing—we help with the business side too. Things like taxes, royalties, and ownership can get confusing fast. This guide breaks it all down in plain language so you can feel confident about how your book is set up and how to manage the money that comes in.
Table of Contents
- Understanding Royalties and Taxes
- Setting Aside Taxes for Royalties
- Who Owns the Book?
- Print-on-Demand Platforms and Tax Withholding
- Best Practices for Financial Management
- Frequently Asked Questions (FAQ)
- Wrap Up
Understanding Royalties and Taxes
What Are Royalties?
Royalties are the payments you receive when your book sells. Whether it’s through online retailers, speaking events, or bulk orders, those earnings are considered taxable income by the IRS. Most royalty payments don’t come with any taxes withheld, which means it’s your responsibility to report them properly and pay what you owe.
How Royalties Are Reported
How you report royalties depends on your role in the publishing process. If you’re actively involved—writing, promoting, managing the book—your royalties likely get reported on Schedule C (Form 1040) as business income. If you’re a passive owner (for example, you own rights to the book but don’t actively manage it), you might report them on Schedule E. In most cases, authors who are self-publishing or working closely with a publisher will use Schedule C.
Setting Aside Taxes for Royalties
Why You Should Set Money Aside
Because there’s no automatic tax withholding, you need to plan ahead. A lot of authors are surprised come tax season when they realize they owe hundreds or even thousands of dollars—money they’ve already spent. Don’t let that be you.
How Much to Set Aside
A safe rule of thumb is to set aside 25–30% of all royalties. This covers federal income tax, self-employment tax, and possibly state taxes, depending on where you live.
How to Do It Easily
- Step 1: Open a checking account for all royalty payments.
- Step 2: Open a separate savings account just for taxes.
- Step 3: Every time a royalty deposit comes in, immediately transfer 25–30% into that tax savings account. (these can come in monthly or quarterly depending on the set up)
- Step 4: Make quarterly estimated tax payments to the IRS if you expect to owe more than $1,000 in taxes for the year.
This rhythm—deposit, set aside, repeat—keeps your taxes clean and stress-free.
Who Owns the Book?
Ownership Depends on Who Paid for It
This part can get confusing, but the principle is simple: The person or organization who funds the book usually owns it. Here’s how it breaks down:
You Pay for the Book Personally
If you, as an individual, pay for editing, design, printing, or any part of the publishing process with your own money, you own the book. That means:
- You receive the royalties
- You hold the copyright
- You decide where and how the book is sold or distributed
This is the most common setup for self-published authors.
If a Nonprofit Pays for the Book
If a nonprofit organization covers the cost of the book—whether through general funds, a grant, or a donor—the nonprofit owns the book. Even if you wrote every word, if their money funded the project, it legally belongs to them. This means:
- Royalties go to the nonprofit
- The nonprofit decides how the book is distributed or used
- You may still be credited as the author, but you don’t own the rights unless stated in a contract
Even if you’re the founder or director of the nonprofit, you’re not the legal owner—the organization is.
If a Business Pays for the Book
If your business or publishing company pays for the book’s production, then the business owns it. This is useful if you’re building a brand and want to keep all business activities under one legal entity. The business:
- Holds the copyright
- Collects the royalties
- Can license or repurpose the content as part of its services
This structure keeps your personal and business finances cleanly separated, which can be helpful for taxes and liability.
Can You Transfer Ownership?
Yes. If you originally paid for the book personally, you can later transfer ownership to a nonprofit or business. But it needs to be clearly documented with a written agreement. This is something to do carefully—especially if the book is already earning money.
Bottom line: Whoever funds the production of the book typically owns it. Always keep that in mind when deciding where the money comes from.
Print-on-Demand Platforms and Tax Withholding
What These Platforms Ask
When you sign up for a print-on-demand service they will ask if you want them to withhold taxes before they pay you royalties. This is especially true if you’re outside the U.S., but it can come up for domestic authors too.
If you’re a WestSky Publishing author, we handle all of the set up for you—including the optimal royalty and withholding settings.
The Best Answer: Don’t Withhold
For most U.S.-based authors, we recommend you set withholding to $0. Let them pay you the full royalty amount, and handle taxes on your end. Here’s why:
- It keeps all your income centralized
- You’ll have more visibility and control
- You can set aside the right amount for taxes yourself
- It simplifies your bookkeeping
Withholding sounds helpful, but it can actually make tracking more confusing in the long run—especially if you’re earning from multiple platforms.
What to Do Instead
- Funnel all royalties into one dedicated account
- Follow your set-aside plan every time royalties come in
- Make quarterly estimated tax payments on your terms
This gives you a cleaner, more professional approach to handling your book income.
Best Practices for Financial Management
Keep Clean Records
Use a spreadsheet or accounting tool to track every dollar that comes in or goes out for your writing. This includes:
- Royalties
- Advertising spend
- Software subscriptions
- Editor or illustrator payments
- ISBN and registration fees
Good records make tax time a breeze and help you understand how your book is performing financially.
Use Accounting Software
If you want to go beyond spreadsheets, tools like QuickBooks, Wave, or FreshBooks are great for authors. They can automatically import transactions, generate reports, and help you prep for taxes.
Talk to a Tax Pro
Especially if you’re earning more than a few hundred dollars per month, it’s worth sitting down with a CPA or tax advisor—ideally one who’s worked with authors or creatives before. They can help you:
- Choose the right reporting method
- Understand deductions
- Avoid penalties
- Create a long-term strategy
Don’t try to figure it all out on your own. A one-time consultation can save you thousands in mistakes.
Frequently Asked Questions
Do I need to form an LLC to publish a book?
No, you don’t need an LLC to publish or earn royalties from a book. Most authors operate as sole proprietors, especially in the beginning. However, if your writing becomes a full-time business—or you want liability protection, a business bank account, or to separate your finances—it might be worth forming an LLC. It’s not required, but it can be a smart move depending on your goals and income.
If I sign a publishing contract, do I still own my book?
It depends on the contract. In many traditional or hybrid publishing deals, the publisher may own certain rights to your book—like print, ebook, or audio rights for a set number of years. Always read the fine print. Just because you wrote it doesn’t mean you automatically retain full control if you’ve signed something.
If you’re a WestSky Studio client, we let our authors retain 100% of the rights and royalties to their work.
Can I deduct writing expenses on my taxes?
Yes. If you’re treating your writing like a business (not just a hobby), many of your related expenses can be deducted. This includes things like:
- Editing and design services
- Software like Scrivener or Microsoft Word
- Marketing and advertising
- Travel for book events
- ISBNs and distribution fees
- Home office space (if used exclusively for your work)
Keep receipts and track everything. It can significantly lower your taxable income.
What about sales tax if I sell books myself?
If you’re selling books directly—at events, book fairs, or even your own website—you may need to collect and remit sales tax depending on your state’s laws. Some states require a seller’s permit for this. Check with your state’s department of revenue to be sure.
Do I need to worry about foreign taxes if I sell internationally?
Possibly. If you’re earning royalties from international platforms (like Amazon in the UK, Canada, or Australia), some countries may withhold a percentage for taxes unless you’ve submitted the proper forms (like a W-8BEN or a W-9, depending on your status). This gets more complex for non-U.S. authors. When in doubt, consult a tax professional who understands cross-border royalties.
What if I funded the book personally but now want my nonprofit to own it?
You can transfer ownership, but it needs to be documented properly—usually through a written agreement or rights assignment. It’s best to do this before the book starts generating royalties or getting distributed. Otherwise, the IRS may still consider the income personal, even if the nonprofit later controls the book. Talk to an accountant or attorney first.
Do I have to pay taxes even if I only made a few hundred dollars from royalties?
es. All income is technically taxable—even if it’s a small amount. That said, if your total tax liability for the year is under $1,000, you may not be required to make quarterly payments. But you should still report it. Even a couple hundred dollars in royalties means you’re a working author in the eyes of the IRS.
Wrap Up
As an author, you wear a lot of hats—creator, marketer, distributor. But once money starts flowing in, you’re also a business owner, and that means being smart about taxes, ownership, and how your royalties are handled.
Set aside for taxes. Know who owns your book. Choose to control your money—not have the platform do it for you.
It doesn’t have to be complicated. With a few systems in place and a clear understanding of how things work, you can protect yourself, plan for the future, and focus on what you do best: telling great stories.
If you’re a WestSky author or client and want help thinking through your setup, we’re here for that. Let’s make sure your book is not just beautiful—but well-positioned for success.
