Legal Requirements , Tax Laws and Forms for Publishers

Two authors wrote me in the past week asking about legal requirements, forms and tax laws for self publishing or starting a publishing company. I remember going on the same quest myself eleven or twelve years ago and getting pretty confused. Part of the problem is that there are all sorts of business forms you can assume at startup, from C corporations to sole proprietorship. One thing for self publishers to keep in mind is that the legal liability you assume as an author can't be avoided through the business form you choose. You're just as liable for libel and copyright infringement as if you wrote the book for a major trade. If you're planning on publishing books by other authors, then choosing the right business form is important to limit your liability.

A new publishing business faces the same legal requirements as any other new business. For example, if you are making up a name for your publishing company as opposed to using your own name, you may need to file a DBA (Doing Business As), which is done on the local level. I'm sure the laws are different all over the country, but at the time I filed in Massachusetts, the penalty for not filing was a couple hundred dollars, but only if somebody complained. If you are going to resell books in a state with a sales tax, you'll need a tax ID or resellers license from the state so you can collect and pay sales tax. The state doesn't charge for it, they just want the money. Some printers will want a copy of your tax ID before they ship you books without charging you sales tax. If you don't sell direct to retail customers in your state, you don't collect sales tax.

Legal requirements for publishing businesses are the same as legal requirements for any other business. Copyright registration will help you protect your intellectual property, and I wouldn't suggest signing an author to a book contract without sitting down with a lawyer and making sure you understand what you are offering and what you are buying. I don't recommend to anybody in business to try to do their own lawyering, it's just too specialized. Still, it can't hurt to read the latest edition of Kirsch's Publishing Law just to get an idea of how much you don't know:-)

I attended an IRS/DOR seminar some years ago and asked the IRS specialist if it was true that all publishers had to use strict accrual accounting. He looked into it for me and got back with response that the IRS was fine with publishers whose sales were less than a million a year doing cash accounting. I just tried to run down that same information on the IRS website, but I find it elusive.

I do recommend that new publishers do their own accounting and taxes in order to gain an understanding of how tax laws shape the business environment. If you're uncomfortable doing your own taxes, do them anyway, and then hire a professional to do them again. You can read all you want about tax laws, but there's nothing like doing your own taxes year after year as your business operates at different levels of profit to gain an understanding of how timing of expenses is critical. Spending money simply to save money on your taxes never makes sense. Investing money in your business during December instead of January can makes thousands of dollars of difference on taxes to even a modestly successful self publisher, depending on which direction your income is tracking.

Anybody who wants to print books and call themselves a publisher can, there are no special forms to fill out. However, if you want book retailers to be able to order your book, you need to get ISBN numbers from the Bowker agency for a couple hundred dollars. There are some work-arounds for for publishing a single book, but I don't recommend them. If you're serious about being in the publishing business, getting ISBN numbers that uniquely identify you as the publisher of the books and allows them to be listed in databases is a required start-up cost.

Unless you have a big budget for acquiring titles from authors or enough money in the bank to give your full-time self publishing endeavor a couple years to make it or break you, I recommend starting on shoe-string. This means not spending any money playing at being in business. You don't need stationary, a new desk and chair, the latest laptop or an accounting package. You especially don't need to spend your first couple months in business learning how to run that accounting package. Just keep paper records, and at the end of your first year, you may find that you don't need to file a Schedule C for your publishing business because you don't really have one yet There's no glory in failing big, it's just more expensive than failing small.

I'm aware that this isn't the step-by-step recipe for creating the paperwork infrastructure of a publishing company that my correspondents were asking about, but that's because there is no recipe. Anybody who gives you a laundry list of things you have to do to start publishing (and suggests you retain their professional help in doing so) is just blowing smoke up your eyeglasses. The only thing you really need to do if you want to minimize the number of expensive mistakes you make getting started is as much homework as possible.

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