Hello, author here with a question about split royalties and how best to claim taxes. I write as a partnership with a foreign counterpart. He lives in Bosnia. I publish for us here in the states. Our first shared royalties are due to start rolling in here at the end of the month. How do I figure taxes to best stay in tax compliance?
I want to send estimated tax payments to the IRS (as companies like Amazon/Kindle and Ingram Spark do not withhold taxes). Do I withhold taxes based off the entire royalty amount and send him his portion (post tax) or (pre tax) and does that matter based off his country of residence and its treaty-tax status with the U.S.?
I would appreciate any help.
I write as a partnership with a foreign counterpart.
You have a partnership with a foreign partner. Even if you don't have a formal written partnership agreement, you have a partnership, at least as far as taxes are concerned. You need to get some high-level professional tax and legal advice right away.
A partnership is a legal entity separate from the partners. The partnership has to file its own partnership income tax return, Form 1065, and distribute the income to the partners. Royalties should be paid to the partnership, not to one of the partners.
See the following page on the IRS web site for more information.