Why are Royalties based on gross?


#1

Sorry if this has been covered already… I got my 1099 today and my “Royalties” for 2016 are higher than my “earnings”… by exactly the buyer fee. I hadn’t realized that they would report using the gross sales, but they had it in writing all along:

Can someone explain this better to me? Why do they report your earnings based on gross and not net, making you pay taxes on income you did not receive?

Is there a way to deduct the buyer fee when paying your taxes?


#2

I just asked the same thing and it made me realize something. Your gross is reportable. The fees are tax deductible. It’s a cost of doing business. So just add up the fees and put it in your itemized deductions. Then you will only pay tax on your earnings.


#3

Yes, I think you are correct, but it is just a complicated way of doing things. The buyer fees are small amounts recorded in hundreds of separate invoices… If we ever need to prove that we have paid those fees, we’d have to produce thousands of invoices for $1 or $3 or $7 each.

It just seems a bit dishonest how they’ve structured the payment system… It’s not like we ever receive the gross amount and then pay a fee– we never actually have the funds. It would be much simpler if we split the gross cost at the time of purchase and do not have to do additional accounting… I can’t help but think there is a very specific reason it is structured this way… Like some kind of loophole they are using by calling the buyer fee a ‘fee’ and not a sale… Anyone have a reason why it is this way?


#4

There was a massive criticism from the community when they first introduced this new system in late 2015.
And the criticism fell on deaf ears as usual I am afraid. :’(

I do agree that it’s wrong for them to do it this way, but by no means is it illegal. It benefits them and puts more work on the author as a side effect. But that’s not their problem.


#5

Thanks for your reply. Yes, I think I’ve found some of those old threads you speak of. It’s too bad they have chosen to do things this way, but I guess we have little recourse in the matter. Until there is a another marketplace of similar size that really starts stealing business, envato will set the terms for the authors.