Tuesday, February 24, 2015

How to Keep the IRS From Nickel and Diming Your Book Income

A Little-Known Way to Get the IRS Off your Self-Publishing Back

A Little-known Way to Get the IRS Off your Self-Publishing Back - Lulu.com and ISBN's
(Graphic: DonkeyHotkey)

Just a (hopefully) short note about author earnings on Lulu.

Stumbled on this while researching my recent posts and thought you'd want to know.

Disclaimer: this isn't financial advice. Even Jesus said to "render unto Caesar that which is Caesar's."

TIP: When Lulu gives you an ISBN, they have to report your earnings to the IRS. Use no ISBN (ebooks) or provide your own (hardcopies) and Lulu stays quiet.

From Lulu's FAQs:

Creator Revenue: Frequently Asked Questions

What are Creator Revenues?

Creator revenue is the total money you earn from the sale of your published material. Creator revenue includes Royalties and Other Revenue.

When a creator buys a Lulu distribution service and their material is assigned a Lulu-owned ISBN, Lulu becomes the publisher of record and all earnings are regarded as royalties for that material, regardless of delivery format. The creator revenue generated by sales of material with a Lulu-owned ISBN meets the true and legal definition of a royalty. Royalties are reported to the IRS and are subject to withholding according to United States of America tax laws.

Other Revenue
If your book does not have a Lulu-owned ISBN, then your earnings are not royalties but simply, "Other Revenue," which is the amount of money you make on each sale of your published material. "Other Revenues" are not subject to withholding and are not reported to the IRS.
It's a bit complicated when you get the IRS involved, since they think all your income belongs to them - or apparently.

You give Lulu your Tax ID and tell them you aren't subject to withholding (otherwise, the government forces them to take 30% off the top.)

This "Other Revenue" scene can easily be done with your ebooks (but not with print books as simply.)

How to get book income that the IRS isn't told about.

While Lulu ISBN's make your book easy to find, they also get all your book sales reported to the IRS - since (more or less) you are a "contract worker" for Lulu, as they give you the ISBN and act as your publisher. So Lulu has to report your earnings to the IRS.

None of the self-publishing ebook distributors require any ISBN. They have their own reporting requirements, however, so that doesn't mean you won't get reported.

This really works best if you use Lulu to do all your distribution (except they don't distribute to Google, which you really should utilize.) While you can use your Lulu ISBN for anywhere else you publish, Lulu only reports what they sold for you via their own services. I haven't seen them reporting what I make from the other distributor sales - one reason is that they don't know, and probably don't care.

Lulu only distributes original works, but that's no problem, right?

The IRS-free solution: either provide your own ISBN (extra expense) or don't get a Lulu one. Then have Lulu distribute your ebook for you. All the income doesn't get reported to the IRS, but you are going to have to go to each distributor to get your links - and your payments are slowed down, as well as analytics, etc.

Means you only have to report once a year on your own and no one is alerted about your income until you do.

The same would apply to your print books, which require a separate ISBN for each version. Provide your own in order to get them distributed by Lulu through their Global Reach (Ingrams, Amazon, et al.) and the IRS isn't notified about your earnings.

How to make the most book royalty income hasn't changed.

  1. Take the free Lulu ISBN, but  port to all the ebook distributors yourself. (Saves you distribution fees the other distributors charge to Lulu.)
  2. Back your ebooks up with (ISBN-enabled) hardcopies which are at least available on Lulu, if not also through their Global Reach - so Amazon has your hardcopy listed with your ebook.
  3. Build your list of readers with their emails, and alert them to new releases. (This can cause ranking-jumps in Amazon's algorithms, particularly if they leave nice reviews for you.)
  4. Give them special deals on hardcopy versions which are only available on Lulu (highest royalties.)


  • Lulu ISBN's are free, but they have to report your earnings to the IRS.
  • If you want the IRS off your back, but still want your books on Amazon, etc., then buy and provide your own ISBNs.

PS. Why do I recommend Lulu?
  1. There are no upfront costs to publishing books.
  2. There's no discrimination on your hardcopies compared to CreateSpace (which is Amazon owned.)
  3. Lulu has been around longer than most other indie author self-publisher services.
PPS. Theoretically, this would also apply to Smashwords - but they don't do hardcopy books. I use Lulu as they do.

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