As Australian independent authors, there are very few options open to us for selling our books outside of the major American distribution giants (Amazon, iBookstore, Kobo, etc). The biggest hurdle we face when selling through the American giants is the 30% withholding tax they retain from our royalties and send to the IRS on our behalf. We can bring that figure down to 5% of our royalties by providing them with an American IRS tax identifier of some description.
Whether we choose to pay 30% or 5%, we can always claim a foreign income tax offset through our Australian taxes. I’m not going to cover that subject… ever! I’m not an accountant – I don’t have the focus and attention to detail required for that. For healp on claiming back the taxes you’ve paid in the U.S., see an accountant. (If you find a good one, let me know!)
The two main American IRS tax identifiers available to us are:
- EIN (Employer Identification Number)
- For non-individual entities, such as companies, incorporated clubs, partnerships, sole proprietors, etc.
- ITIN (Individual Taxpayer Identification Number)
- For individual entities, natural persons.
EIN (Employer Identification Number)
If you have an ABN, either for your personal name or a business name registered in Australia, you are eligible to apply for an EIN. The EIN is issued to the business entity, not you as an individual.
- The application process is a lot quicker, with many people receiving their EIN over the phone.
- The application process is much easier, without the requirement for letters from the American giant or govt. certified copies of your identification papers.
- You can apply before publishing any books through an American giant distributor.
- You must maintain the business name or company in good standing, and advise the IRS of any significant changes (such as expired business name or change of company directors).
- You have legal requirements with the ATO for filing of paperwork related to having an ABN.
- The cost of maintaining the business entity may outweigh the costs involved in obtaining an ITIN.
- You must sell your books through the business entity which has been assigned the EIN.
During my research, I read many articles where people rort the system by registering a business name for one year to apply for an easy EIN, then let it lapse. Don’t do this. Not only is it ethically wrong and lazy, you will be on the hook for massive penalties should you be found out. In this age of technology, you will be discovered.
ITIN (Individual Taxpayer Identification Number)
As a natural person, you can apply for an ITIN that is assigned to you as an individual.
- No need to maintain a separate business entity or ABN, with associated costs and reporting.
- Despite the initial costs of having documents certified, an ITIN is cheaper in the long run.
- The process takes several weeks.
- The IRS made some changes to the system in 2013, and ITINs now expire every 5 years.
- Getting your paperwork in order to apply can be a little overwhelming.
At this stage, it is unclear how easy (or convoluted) it will be to renew an ITIN.
If you’re worried about costs, an ITIN is best in the long run.
If you’re concerned about running a business or ABN reporting, an ITIN is the way to go.
If you like it easy, quick, and don’t mind a challenge, get an EIN.
I guess the main difference is this… if you like the idea of constantly banging your head on the desk for years to come, get an EIN. If you prefer a short, sharp poke in the eye at the outset followed by many years of hassle free writing, go for the ITIN.
Personally, I went for an ITIN. It took 6 weeks from go to woah, but was relatively simple. I will be featuring an article on how to obtain an ITIN in the near future. I will also be posting about applying for an EIN as I follow a guinea pig (volunteer) through the process of obtaining an IRS tax identifier over the phone.