The Tax on Books for Consumers, Authors, and Professionals

The term “tax on books” has different meanings depending on the context. For a consumer, it refers to the sales tax added at purchase. For an author, it involves income and self-employment taxes on their earnings. For professionals and students, the cost of a book can lead to tax deductions.

Sales Tax on Book Purchases

When a consumer purchases a book, the final price often includes a sales tax, a levy determined not at the federal level but by state and local governments. Businesses that sell books are responsible for collecting this tax from the customer and remitting it to the proper state authorities. The specific rate varies significantly by location, as different counties and cities can add their own taxes on top of the state rate.

The taxability of a book hinges on its classification as “tangible personal property,” a category that applies to physical books like hardcovers and paperbacks. The rules for digital products are more complex. As e-books and audiobooks have grown in popularity, many states have begun imposing sales tax on them, meaning a purchase could be tax-free in one state but taxable in another.

Online book purchases are affected by marketplace facilitator laws. These laws require large online retailers, such as Amazon, to collect and remit sales tax on behalf of third-party sellers using their platform. This shifts the compliance burden from smaller sellers to the larger marketplace, ensuring that sales tax is collected on most online book sales.

Authors who sell their own books directly to consumers become responsible for sales tax compliance. This applies in states where they have a significant business presence, known as nexus. If they are considered the “seller of record,” they must register for a sales tax permit, collect the correct tax from customers, and file returns with the state.

Income Tax for Authors

Income an author generates from writing a book is subject to federal and, where applicable, state income tax. The Internal Revenue Service (IRS) treats authors as being self-employed, meaning their writing activities are considered a small business. This classification applies because the earnings do not stem from a traditional employer-employee relationship but from the sale of a product.

Authors receive two main forms of income: advances and royalties, both of which are taxed as ordinary income. Publishers report these payments to the IRS and the author on different forms. Royalties of $10 or more are reported on Form 1099-MISC, while payments for services, including advances, of $600 or more are on Form 1099-NEC. This income is reported on Schedule C, “Profit or Loss from Business,” which is filed with the author’s personal tax return, Form 1040.

A primary consideration for authors is the self-employment tax. If an author’s net earnings from writing exceed $400 in a year, they are subject to this tax, which covers Social Security and Medicare contributions. The rate is 15.3%, broken down into 12.4% for Social Security on earnings up to an annual limit and 2.9% for Medicare with no income limit. Self-employed individuals pay both the employee and employer portions.

Because they are treated as a business, authors can deduct expenses incurred in their writing activities against their income. It is important to distinguish between writing as a business and as a hobby. If writing is not pursued for profit, the IRS may classify it as a hobby, which limits the ability to deduct expenses. Consistent activity and a clear intention to make a profit help establish writing as a business.

Deducting the Cost of Books

Individuals who purchase books for specific professional or educational reasons may be able to deduct the cost on their tax returns. For self-employed professionals, the cost of books can be a deductible business expense if the purchase is considered both “ordinary and necessary” for their trade. An ordinary expense is one that is common and accepted in that field, while a necessary expense is one that is helpful and appropriate. For example, a tax attorney purchasing the latest Internal Revenue Code would likely meet this standard.

Employees, however, cannot deduct the cost of work-related books. The ability to deduct unreimbursed employee expenses as a miscellaneous itemized deduction was eliminated by the Tax Cuts and Jobs Act of 2017. This change highlights a significant difference in tax treatment between independent contractors and employees regarding professional materials.

The cost of books and materials required for coursework can also lead to tax benefits for students. These expenses are often considered qualifying expenses for educational tax credits, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The AOTC is available for the first four years of postsecondary education, while the LLC can be claimed for undergraduate, graduate, and professional degree courses, including those taken to acquire job skills.

For both credits, the books must be a condition of enrollment. For the Lifetime Learning Credit, the cost of books and supplies only qualifies if they must be purchased directly from the educational institution. Taxpayers claim these credits on Form 8863, “Education Credits (American Opportunity and Lifetime Learning Credits),” after meeting income limitations and other eligibility requirements detailed by the IRS. Keeping detailed records, including receipts for textbook purchases, is necessary to substantiate the claim.