Show Me the Money - Legal and Financial Issues Two.

Ah, royalties.  The part everyone is dying to learn about – how do I get loads of money selling my books online?

When you upload your book to your online retailer's publishing platform, they will ask you to set a price for the book.  If you are using Smashwords, they will ask you to set a list-price for each retailer, and Amazon's KDP will ask you to set your price for each territory that you want to sell your book in.

Once you set your price, the platform will calculate your royalties from that list price.  Amazon gives you a choice for what royalties you would like to receive for your book.  If you are selling your book for more than USD$2.99, please select 75% royalties.  The only reason you will be receiving less than 75% royalties is if your book is priced below USD$2.99 or the book is public domain.  “Books that consist entirely or primarily of public domain content are not eligible for the 70% royalty option.” ~ KDP.

I have a series of ebooks that teach children basic concepts.  My Rocket Boy Twinkle Star is completely public domain, so I can only get 35% per sale.

You will receive an update each month for your sales.  Smashwords shows each book sale on each of the retailers you have sold through Smashwords on their 'Sales and Payment Report'.  Amazon shows you books sales in the reports page – daily, weekly, and monthly.  The sales also include all the free promotional sales you have through their Kindle Select Program, and any price-match sales (i.e. where an ebook has had its price automatically changed because of appearing at a lower price on another retailer).

It takes a little to get used to reading reports, but once you get the idea it is easy to keep updated daily.

I recommend keeping a spreadsheet of all your sales, borrows, and free promotions.  This is so you can keep an up-to-date record of all the books you are selling, which books are selling better than others, and which books do better with free promotions.  You will find that Amazon labels the Kindle Select Program borrows as KOLL or Kindle Owners Lending Library, as this is what they have named the programme from the consumers side of things.

Ok, so payments.  Royalty payments happen every month.  Amazon calculates sales, borrows and refunds – yes you get a few – and creates a report which is uploaded to your Reports page on KDP by the 15th of each month.  It then takes them about 60 days to get your cheque or direct credit off to you.

When you set up your KDP account, you were asked to select your payment options.  If you have a Foreign Currency Account (FCA) – I recommend if you are making some decent money – you will need to give your bank account details and state that you want royalties from all territories to be direct credited into this account.  From NZ, I think it is best to get a Great British Pound FCA through your local bank (this may vary between banks). 

Foreign Currency Account (FCA) is a transactional account denominated in a currency other than the home currency and can be maintained by a bank in the home country (onshore) or a bank in another country (offshore).
http://en.wikipedia.org/wiki/Foreign_currency_account

If you do not have an international Foreign Currency Account in the UK or USA, you will be receiving your royalties by cheque.  It takes another few weeks for your cheque to arrive in NZ, and once you have deposited it into your account it will take another 30 working days – six weeks!!! – for it to clear.  Your NZ bank has to send that cheque back to the states to get it cleared and into your account.  NZ is the back-end-of-nowhere and it still takes up to four months from the end of the Royalty Month for you to receive your cash.  Royalties that were earned in December will not clear until end of April – long time.

Be sure to keep a record of every transaction, every deposit, every cheque, and keep receipts of all your rent, internet/phone, power bills, and any stationery, advertising, ebooks, printed books, illustrator fees, digital formatting fees, and computer parts, including ink.  You can use these in your business tax returns as expenses against the tax you will need to pay on the royalties you have earned overseas.  Please see our 'Legal and Financial Issues Part Three' post for more information on this.

Please note: when a royalties cheque is delivered, it is written out to the name you have set your KDP account up under.  If you do not set your account up with your real name, you will not be able to post cheques into your account.  Please do not set your KDP account up under a pen name, use your real name.  No one will be able to see the real name except KDP and you, so you can still do the publishing of books under a pen name.

Please also note: Amazon will only send royalty cheques to the person who has published the book.  They do not send cheques to more than one contributor, only to the person who has the book published on their account.  If your book has more than one contributor, you will need to make separate arrangements to these other contributors for royalties.  Personally, I do not pay co-contributors with royalty payments.  I pay for services in a lump sum.  Trying to sort out royalties for other people each month would just be a nightmare, especially when you consider you have to pay withholding tax before the cheque is sent.  You then have to divide the net amount between you and your contributors and then you have to pay tax again on top of that to the NZ IRD – holy crap!  It's just too messy, please don't consider publishing this way!

Pay your contributors apart from your royalties.  Keep it clean.

Once your cheque has cleared, or your money is direct credited to your account, you need to remember to keep aside about 12% for paying tax on your royalties to the IRD here in NZ.  Yes, you will be paying tax twice, but it has to be done.  Paying tax on royalties is another huge topic to cover, so please see our 'Legal and Financial Issues Part Three' post for more information.  Why is tax so huge a topic?  When you consider that without a US IRS Employee Individual Number (EIN) or an International Tax Individual Number (ITIN) you will be paying 30% withholding tax that Smashwords and Amazon kindly deduct from your royalty cheques each month.  But because NZ has a Double Tax Agreement with the states, you are entitled to only paying 5% each month.  So see our next post!

Thanks, and remember, set up a Foreign Currency Account if you can, set your KDP account up under your real name to get cheques made out to your real name, keep a record of book sales each month, pay your contributors before you earn on your books, and get yourself familiar with tax issues in our next post.

Phew!  Am tired now, need some sleep.  All this talk of money and tax... would rather be writing kids' stories any day!

~ Joy Findlay