As promised in an earlier post.
- Not a US citizen. This may not be helpful to you if you are a US citizen.
- I’m a UK national, living and working in Switzerland.
- I have a day job which is my main income. Writing is a secondary activity that happens to produce a little income.
- Not a tax or legal person. Not at all, in any way.
- This is NOT tax or legal advice. This is a post detailing some some high-level suggestions to help other writers think about their tax situation, based on my personal experience.
- THIS IS NOT OFFICIAL ADVICE OF ANY KIND.
- If you get in tax trouble and point at this post as a reason why you got into tax trouble 1) I will not be impressed at your lack of critical thinking 2) neither will the tax authorities auditing you.
- Do your own research for your own situation, always.
I’ve been in Switzerland for about four years at the time of writing this post. I have to fill out tax returns and declare all my income, and royalties are part of that. The difficulty about Switzerland is that there are three levels of tax: federal, cantonal (cantons are similar to counties/states/provinces), and city; this means local rules around income declaration may be different, so unlike the UK tax post, I can’t actually provide tips or anecdotes that could be potentially useful to a general group of people. I decided instead to outline the process I followed in order to figure out how to declare royalties in a new place where I’m tax resident.
- Find out how royalties are taxed. As they’re a type of income, they usually are taxed. This information is found in the tax-treaty between the country where you pay taxes, and the country of origin of the royalties. In my case, I am tax-resident in Switzerland and the royalties come from the USA, so I found the tax treaty between the USA and Switzerland, and read it. Both countries involved make these documents available to the general public, so you can find the tax treaty by searching either of the governments’ websites. This document will tell you the following important information:
a) how royalties are classified where you pay tax (what type of income, and sometimes even percentage tax rates),
b) whether or not you declare this income to the USA as well as your place of tax residency. If you have to declare it to the USA as well, get comfy filling out IRS forms in addition to local tax returns.
c) certain key phrases to help you fill in the paperwork, find the right paperwork, and find more information.
- Declare the income or not: You know that you will have royalties of some amount coming in, and the prudent thing to do is declare it on your tax return in addition to your main income and anything else (investments, property, inheritances, windfalls etc). Even if they’re generally super low amounts (like mine *pathetic sob*) I personally think it’s better and safer to declare it than not. Governments have better tax lawyers and more resources than you do. If your government isn’t interested – and some places may not be interested in amounts below a certain threshold – they will tell you so, via government website or official communication in response to your return. However, in my personal opinion, it is always in your favour to declare.
- Set up a business structure or not: this depends on the tax structure. In the UK, this was required to declare my writing income, but in Switzerland, it isn’t (this conclusion is based on official advice I received from a tax advisor – do not take as gospel, do your own research). There will be a place in a tax form to declare different kinds of income, but there may also be a requirement to formally declare writing as a self-employed activity separate from your main job. Government websites should provide information about this, or paying for a session with a tax advisor to confirm either way is well worth the money.
- Tax years: this can be remarkably different according to country. In the UK, the tax year runs from 6 April to 5 April. In Switzerland, it’s 1 January to 31 December (ngl, I prefer this). Find out what it is for your country and track accordingly.
- Tax return deadlines: this will be a separate date to the tax year. Returns for the UK are usually due 31 January of the year after (so tax year 2019-2020 is due January 2021). In Switzerland, it’s March 31 for the preceding year (so the return for year 2021 is due 31 March 2022). Yes, the Brits get 10 months to file while the Swiss get 3 (but extensions can be requested if certain criteria are met). Having done this for four years now, there is something to be said for getting the pain over with quickly! Find out what it is for where you pay tax, and don’t miss it.
- Get advice. If you’re ever in doubt, get professional advice from a tax advisor. Even if the advice costs money, it may pay off in avoiding trouble from tax authorities down the road. (Here’s your reminder that I’m not a tax advisor.)
Too complicated? Consider hiring an accountant and letting them handle it. Sometimes the freed time and headspace is absolutely worth the money paid to said accountant.
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