# Looking for structure to prevent double taxation on book royalties



## boat (May 17, 2014)

Hello all- I have a bunch of small time books out on sites such as Kindle, and Lulu. They produce about 4K a year in income. I have been filing this income in New Zealand and now that I am joining the US tax system I see I will be double taxed on these sales. That is 30% in NZ, and 15% in the US meaning almost half of all book sales will be taken in tax.

I am looking for some way to structure the sales of these books to prevent this double taxation. 

One CPA tells me to start a company that then sells the books and pays me a salary that is then shown as wages and thus will prevent double taxation. Is this possible and a valid way to structure book sales. 

Any other suggestions?

Boat


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## Bevdeforges (Nov 16, 2007)

I don't have time to look for it right now, but when I was dealing with book royalties I found a section in the US tax instructions that states pretty much straight out that, if you are receiving royalties on a book (or other property) that you created while outside the US, the royalties count as "earned income" and can be excluded via a 2555. Check Pub. 54 first - probably in the section on what is considered earned income.
Cheers,
Bev


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## boat (May 17, 2014)

Bevdeforges said:


> I don't have time to look for it right now, but when I was dealing with book royalties I found a section in the US tax instructions that states pretty much straight out that, if you are receiving royalties on a book (or other property) that you created while outside the US, the royalties count as "earned income" and can be excluded via a 2555. Check Pub. 54 first - probably in the section on what is considered earned income.
> Cheers,
> Bev


Thank you Bev. I just went through Pub 54 and did not see this provision. I'll keep looking though.

Thank you for trying.

I did find more about the US Tax treaties with other countries in Pub 54 and again it seems to say "This is not for US residents, or US citizens, or you, or really anyone you might know..." 

I really wonder who those treaties apply to. 

Boat


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## BBCWatcher (Dec 28, 2012)

Don't you get a U.S. Foreign Tax Credit for the taxes paid on those royalties to New Zealand? I don't see why not. Indeed, the higher New Zealand rate may help you offset other U.S. taxes you pay or at least give you banked credits to offset future U.S. taxes.

The IRS certainly thinks the FTC applies to royalties.


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## Bevdeforges (Nov 16, 2007)

Found it! 42 U.S. Code § 1382a - Income; earned and unearned income defined; exclusions from income | LII / Legal Information Institute

Under the definition of "earned income" paragraph D



> (D) any royalty earned by an individual in connection with any publication of the work of the individual, and that portion of any honorarium which is received for services rendered;


That's from the actual tax code, so it don't get too much better than that.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Yes, that's an option (the FEIE). The FTC is likely a much better one in these circumstances.


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## boat (May 17, 2014)

What great information. I just copied it all and passed it on to our CPA and now hope for the best.

Thank you again and I will let you know how the filing goes.

Boat


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