Important Changes for US Authors/Affiliates/Service Providers

Under your Statements tab there is an option to download your Author Fees invoices for every month this year. This is where you get the invoices you’ll send to your accountant along with the 1099K from Envato you’ll get in 2016.

1099K form = gross sales
Invoice = Author fees you paid to envato

Your accountant takes 1099K - Author Fees Invoice = actual earnings.

I agree it all seems weird for Envato to do things this way but you should be able to get a pretty big write off (if you’re non exclusive) which helps with your overall tax bill in the end. No other stock marketplaces (at least the ones I’m a participate in) work this way which may raise concerns for some accountants, but then again maybe not.

Is there something I’m missing? Seems pretty straight forward to me…

As for the sales tax between states… I’d rather hide under a rock than to deal with that :smile:

Hi @surjithctly! This question was answered in Collis’ announcement. Envato are not going to deduct any amount of Backup Withholding Tax if/when authors submit their W-9 - that’s the entire point: The Backup Witholding amount of 28% is only applied if a US Author does not submit a W-9. Once a W-9 form is submitted to us, the amount of taxes will differ from author to author and becomes the responsibility of the author. Hope this helps clarify. :thumbsup:

If you are a US Author, Affiliate or Service Provider, then you will be required to complete a standard IRS form called the Form W-9 so that we can issue you a Form 1099-MISC income summary each year. Check our Help Center article for the exact definition of who classifies as a ‘US Person’.

If you don’t complete a Form W-9, we’ll hold back 28% of your total worldwide sales as Backup Withholding Tax and remit it to the US Internal Revenue Service (IRS). This tax is applied on the total sales (i.e. prior to our author fees being deducted) as per the IRS requirements. It underscores how important it is to provide us with a completed Form W-9.

Source: We’re Expanding to America. Important Tax and Withdrawal Changes for All Authors and Affiliates

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Thanks for explaining @natman !

Natalia, thanks for the answers. Can you expand on BarBeeCues question? Forget for a minute about the 28% withholding - let’s assume that a W-9 has been properly filled out, money has been earned in 2016, and it’s now time for the author to report in 2017.

The IRS normally requires a 1099 form for invoiced amounts for services rendered by non-employees in excess of $600 in a year:

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Am-I-Required-to-File-a-Form-1099-or-Other-Information-Return

Since Envato is treating the Author Fee as an invoiced amount that the author is paying to a non-employee for a service, isn’t this the same thing? Therefore, does every exclusive author who sells $6000 or more in a year, or every non-exclusive who sells $1364 or more in a year, need to send Envato a 1099 form in the amount of the accumulated Author Fee?

If we’re not supposed to fill out a 1099 for the Author Fee, and just write it off based on the accumulated invoice amounts as is implied, how then is this money tracked by the IRS? Can you tell us how Envato, as a US entity, is planning on filing the income from US Author Fees with the IRS?

Can we also keep in mind that using a tax advisor for even a few hours can be hundreds if not thousands of dollars? I’m sure there’s a high percentage of authors who are using TurboTax or the equivalent. Since all US authors are in the same boat starting next year, it would be great if Envato could provide us with some guidance on how to report.

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Dang man, are you sure you aren’t an accountant?!?! In all seriousness though, thanks for bringing up these questions that I wouldn’t even think to ask. Kind of scared to see how this is going to shake out.

Also Joel, do you think it will be required to go to an accountant? I do file with TurboTax. Shouldn’t there be a relatively easy method of inputting the 1099K info into it?

Nope - not an accountant! I screw up my taxes every year it seems - which is probably why I’m sensitive to complications. I honestly don’t understand much of it, and am hoping that somebody from Envato will set me straight at some point.

I’m hoping that it shouldn’t be necessary to go to an accountant. I use TaxCut, which is pretty much the same, and it is quite easy to enter a 1099 if you go through the process of reporting for a business (Schedule C, Schedule SE, etc. - the software takes you through it). The problem isn’t reporting the 1099, which again, I totally welcome, but the fact that Envato is reporting on stuff we never earned, and it’s still not clear to me how best to deduct the “author’s fee.” Tax software will also take you through deductions - I guess it’s probably going to be Commissions and Fees on Schedule C maybe??

If you’re used to a more simple 1040 or 1040 EZ without dealing with self employment stuff, I think you’re out of luck because your option is reporting as hobby income I believe there will be complications trying to deduct business expenses that way.

Anyway, one reason I’m being so vocal is in the hopes that Envato will provide a detailed FAQ for reporting this stuff in the US that has the blessing of whatever adviser they’re using.

I think I’ve understood the question in here (but please do clarify if I get this wrong!)

That’s right, authors sell their items for an Item Price. On most of Envato Market, this is set by Envato, though we are slowly shifting GraphicRiver so that authors set their own Item Price. You can see this live on three categories already, and the results have been good, so you can expect us to move more of GraphicRiver soon.

In your Statement, every time you make a sale there’s an invoice issued from you to the buyer for the Item Price. At the end of the month we give you a single invoice from Envato to the author for the sum of all the author fees during the month. It’s wrapped up into a single invoice purely for convenience. You’ll also get a summary of all taxes withheld at the end of the year.

So you make a sale, you have an expense (our fee), and some taxes automatically withheld and given to the IRS (if applicable). The three legs each have a documentation record that you can get from the statement page.

Both will still be available to non-US authors, and for US authors you will still be able to use Payoneer (but no longer Skrill). We’re also looking at additional withdrawal options for US authors.

You’ll simply resubmit a W-9 and it will overwrite the last one.

It’s a great question. I think it’s important to understand that when you make a sale, your account is generating income (the sale’s item price), but also an expense (Envato’s author fee). If you imagine in a time before the internet, you might make the sales, and later on Envato would send you a bill which you’d pay. Technology makes it happen instantaneously, but that’s the fundamental underlying transaction.

Consequently when the total sales need to be reported on the 1099, we list them before expenses.

We don’t require you to provide us with a 1099 form, though you should of course check with local regulations, or tax advisor, or accountant what your obligations are. Not all payments are treated in the same way.

The author fees we charge authors (along with the buyer fees we charge buyers) are Envato’s revenue.

The 1099-MISC you are issued will show the royalty revenue you have generated.

To me it doesn’t seem like much of a change for U.S. authors, mostly just semantics. I’ll just continue rolling income from Envato into the rest of my music-business related income. If the IRS audits me, I’ll have the correct forms from Envato, but otherwise, I’m just going to report it the same way that I do now. I don’t think it much matters whether you are calculating your income from a lump-sum Envato pays you through Paypal, or from the equation of gross sales - the cost of Envato fees, either way it should end up being the same amount of income. The IRS can only tax your income, not your gross sales.

Not sure how the rest of you are doing your taxes, but I already treat Envato income as business income, and if you don’t have your envato-related income set up as a business, you are missing out on being able to deduct and amortize the cost of things like instruments, equipment, computers, ect.

Now the international guys, those guys are getting hit hard buy this change…

"The author fees we charge authors (along with the buyer fees we charge buyers) are Envato’s revenue. "

Exactly, they are you’re income not ours, so why send us a 1099 for your income?

“The 1099-MISC you are issued will show the royalty revenue you have generated.”

No, according to every other Envato explanation, the 1099 you will send will reflect what I earned plus what Envato earned. I’d like someone with a U.S. tax background to tell us how this is legal. If I sell TV’s at Best Buy, and got a 10% commission, would best buy send me a 1099 for the price of all of the TV’s I sold, no way. They would give me a 1099 for the 10% commission. I truly think Envato has found some tax loophole, and they are letting their authors be the scapegoats, because this make zero business or tax sense. If you want to do it like this, send us a bill at the end of the month for our fees. Otherwise, how can you claim an expense you never paid. Income tax is all about money going in and out. Envato is saying it went in, but we can’t show it went out.

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Joel,

Thanks for putting in the time to help get to the bottom of this stuff. I too feel like most vague and unclear thing about all of this is how to claim our “Author Fee” as a deduction.

Also, something I thought I might add to the thread-
Are we to claim our income from 2015 using this “Author Fee” model, or will this only take effect starting in Tax year 2016? Even if that’s the case, won’t we need to make some effort to pay back taxes on “Author Fees” for years prior to 2016? Seems like there are many ways this could unravel…

The way I understand it, Envato considers your income to be 100% of the item price (the list price minus the buyer fee) you then deduct Envato author fees from that income as a business expense…except they do this for you. In terms of payments and invoicing, this is done automatically, instead of paying you all your money and then billing you, which does seem a bit weird, but it’s how they are operate, probably because a lot of authors wouldn’t willingly give up those fees. It’s different from working at a retail store, because Envato doesn’t consider themselves to be an employer and thus aren’t paying people a commission or wage, because they don’t consider money from the sale to be their income (even though technically it is going to them, but legally they can say you have “realized” income from a sale, cash doesn’t actually need to be transferred as I understand US Tax Law), they only consider buyer/author fees to be their income, and sales to be income of the author.

I just hope I’m not adding to the confusion (though I probably am). Maybe Adam’s right and the hobbyist musician scenario is a non-issue, or at least no one seems to be concerned about it.

Based on some of the answers in this thread, it seems like we’re probably not going to get specific instructions from Envato for the actual reporting, which makes sense since it’s not in their purview to give tax advice. For myself, since I do report as a business, what I’ll most likely do is enter the full amount from the 1099 as I would with other 1099s, and then use the most appropriate bucket on Schedule C (I think Commissions and Fees like I said earlier) to deduct the “author’s fee.”

I think for income from this year you can probably report as you always have. We won’t get a 1099 for 2015 earnings if I understand correctly.

[quote=“BarBeeCues, post:37, topic:12386, full:true”]

“The author fees we charge authors (along with the buyer fees we charge buyers) are Envato’s revenue.”

Exactly, they are you’re income not ours, so why send us a 1099 for your income?

“The 1099-MISC you are issued will show the royalty revenue you have generated.”

No, according to every other Envato explanation, the 1099 you will send will reflect what I earned plus what Envato earned. I’d like someone with a U.S. tax background to tell us how this is legal. If I sell TV’s at Best Buy, and got a 10% commission, would best buy send me a 1099 for the price of all of the TV’s I sold, no way. They would give me a 1099 for the 10% commission. I truly think Envato has found some tax loophole, and they are letting their authors be the scapegoats, because this make zero business or tax sense. If you want to do it like this, send us a bill at the end of the month for our fees. Otherwise, how can you claim an expense you never paid. Income tax is all about money going in and out. Envato is saying it went in, but we can’t show it went out.[/quote]

hi Barbeecues, I think the key things to understand here are that:

  • When a sale happens, your account is credited with that sale and you have earned royalty revenue from the buyer of your work
  • At that moment we apply any relevant taxes (e.g. backup withholding if it applies)
  • At the next moment, we charge you our author fee. You have an invoice every month as documentation that you paid Envato these author fees, like any other expense you might incur in the course of your business
  • Still later if you withdraw to a bank account, you’d incur another fee - the SWIFT fee

Because of the magic of technology, the first three steps happen virtually instantenously, but that’s the sequence. When reporting your total royalty revenue, we report the total of all the sales, before taxes and before our author fees, before swift fees, before purchases you make, etc.

You should talk to your tax advisor or accountant, and keep records of the author fee invoices we provide you in the statement section of your account, and if you make purchases from your account, you should keep copies of the invoices you receive for those purchases.

I hope that helps!

As I mentioned above, the best thing to do is to keep records of your account, the total sales, and all costs incurred (our fees, any purchases you make on your account, etc), and discuss with your tax advisor or accountant.

A post was merged into an existing topic: Important Changes for Non-US Authors/Affiliates/Service Providers

Hi,

I would like to ask the following

  1. If I’m a US author, will this new tax policy effect me and how?
  2. If I’m working with a US envato author, will this new policy effect the partner?

Regards

Hi,

I would like to clarify the following

  1. What if im a US author, will this new tax policies effects me? If yes how?
  2. What if I’m working with a US author as partner and take higher side of sharing, will this effect me and my partner
  3. How to get payments from different partners we have?

Regards

Hi @jthemesstudio and @plexdesigns, these changes will impact all authors, affiliates and service providers. I encourage you to carefully read through Collis’ blog post, the help center articles and Envato staff Q&A forum posts in this thread for details.

Unfortunately, we can’t help you with your questions about how to operate your business. For these, we recommend getting in touch with a local tax advisor or consultant.

Did I hear/read right that direct deposit to a bank account will be possible starting in January 2016, and PayPal may no longer be needed for US Authors?