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I sell physical review books for a certification in my professional field that are starting to pick up on Amazon, about $2000 per month. I am paying a publishing company to print my books and then I ship the books over to the Amazon warehouse to be a "fulfilled by Amazon" item.

My question is: From what I've been able to read online (although the nuances seem confusing), you cannot deduct the cost of the actual book publishing as a self-employed person. Is this correct? Can I deduct the shipping costs from the publisher if not the books themselves?

I guess I think it interesting that the IRS would say that you cannot deduct the costs of the books themselves since they are literally the product and not charge you taxes based on the profit of the books. I read a reference on a site that this is considered a "reproduction and distribution expense" but can't figure out if this means anything useful as far as a tax deduction.

Can anyone clarify?

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    im 90% sure this is on topic for writing SE, but legal SE will be able to help if you do not get a clear answer from here for any reason. Commented Mar 24, 2021 at 18:12
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    I'm not a CPA, and this is a bad time of year to get an actual CPA to be on any sites. I'd ask my wife (who is a CPA) but she'd rip out my lungs for asking a tax question. I think they should be as a sole proprietorship, but I'd ask a CPA. Here's a site that discusses it though taxesforwriters.com/are-self-publishing-expenses-tax-deductible/….
    – DWKraus
    Commented Mar 25, 2021 at 1:13
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    Unfortunately we don't have "Tax SE" or "Accounting SE" here. "Legal SE" is only somewhat relevant. Generally, when doing a business in US (even as self-employed), all business-related expenses are tax deductible. HOW to deduct them correctly is a good question which a tax-specializing CPA should be able to answer.
    – Alexander
    Commented Mar 25, 2021 at 19:12
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    Yes, you need to consult an accountant. My understanding, possibly incorrect and outdated, is that with physical inventory, you don't deduct the cost until you actually sell it. So if you spend, say, $10,000 to print 5000 books, but only sell 1000 of them while the rest are in the Amazon warehouse, you can only deduct $2000 of the printing cost. It is possible, even likely that you can have taxable income when you don't have any profit (this is why you see books getting remaindered—it's a way to get the inventory off the books, so to speak). Commented Mar 26, 2021 at 4:31
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    I’m voting to close this question because it is not specifically about writing.
    – Chenmunka
    Commented May 21, 2021 at 17:07

2 Answers 2

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Production costs are part of the cost of goods sold calculation you apply when working out the taxable portion of the inventory as it is sold. If Amazon pay you as soon as they receive the books then you are allowed to deduct all costs associated with making the thing you sell. You may not claim the cost back on inventory that is still on hand, even if it is on hand with a forwarder like Amazon.

If the books are no longer of economic relevance (you are not going to sell them for whatever reason) and you throw them away or otherwise dispose of them such that you are not able to benefit from them again in the future, you can claim the production costs, shipping, design, and any other costs you have had to absorb that are related to the selling of that product. You will probably need to speak to an accountant about how to track and evidence such costs but it is pretty straight forward.

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Here’s a short, non-authoritative, un-fact-checked summary of how deductions work:

You can deduct the cost of your business on Schedule C. You get a fixed amount that you can deduct immediately (I forget what it is these days, but back in the 90s it was $10,000), but outside of that, durable goods have to be deducted over the lifetime of that good (so, for example, if you spent $1000 on a computer for business use, you would be able to deduct $333.33 a year over the next three years, assuming a 3-year lifespan and straight-line deduction. But most self-employed peoples’ expenses will fall within that single deduction limit.

But the cost of goods for sale can only be deducted when they’re actually sold or otherwise disposed of. So, if you spend $1000 to print 200 books and ship them to Amazon and you sell 5 of them, you can only deduct $25 and not the full $1000. But when you decide that the other 195 books are never going to sell and you dump them in the recycling bin, you can then deduct the remaining $975. This is why publishers will “remainder” books that haven’t sold, shipping them off to resellers who will sell them for a fraction of the cover price (you’ll note that books sold in this fashion are generally “defaced” in some way: clipping a corner of the cover or marking the edge of the pages with a marker or some such to prevent them from being sold as new). This allows the publisher to deduct that production cost of the remainder of the book.

Generally all the costs of producing the good for sale will be part of this accounting method, so, for example, if you pay $200 for a cover image, you have to spread that deduction across the sale of all the copies (although generally, you don’t need to spread that past the initial print run if you do a second printing with the same cover image, although your agreement with the artist might call for a second payment in that instance). Accounting for POD and fixed up-front production costs is beyond my ken and I would suggest consulting with a good accountant or tax specialist about that.

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