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Comment by badminton1 | Hacker News Reader

Sounds interesting. How does it work tax-wise?

In a word: ouch. Kickstarter and Indiegogo send 1099s. Gumroad doesn't, but between this and my stock market gains I'm in a really nasty tax bracket, so I set a bunch of it aside for taxes. Luckily? I usually spend a lot of the money I earn from side projects on funding other failed side projects, but I basically plan on giving up 30-40% of side project earnings for taxes.

There is some fancy stuff you can do that helps, but once you get above a certain income level you just have to pay.

You're not paying 30-40%. Marginal rates are capped at 39.6% and the vast majority of your income is taxed below that unless you're making many hundreds of thousands of dollars every year. Stock market gains are 15% unless you're selling within a year of purchase, and even then they're only taxes as any other income, not penalized in any way. This isn't even taking into account the deductions like home office(s), having your business pay for as many expenses as you can reasonably argue, etc.

Don't forget state income taxes which very easily can bring you effective rate up to 30-40%.

You are 100% right, if you're in a state with a progressive state income tax your effective rate can go up pretty quickly. I am spoiled to live in a state with a ~3.2% flat income tax.

I feel your pain. 2016 was my first full year of employment after graduation and I made substantial (short-term) capital gains. I was not thrilled when I filed to say the least.

> once you get above a certain income level you just have to pay.

lol, I weep for you, Austen

Writing a book and selling software are similar from a tax perspective; you pay income taxes on the difference between your revenues and expenses.

It might surprise people that authors have material expenses, but it is very, very easy to have them, particularly if one is operating one's business in a disciplined fashion. Authors have an image of being starving artists but lawyers and accountants who work for authors, to pick two examples, are not.

Gumroad doesn't even send 1099's, like Amazon does for Kindle authors. I am not an accountant, but I believe it's just gross receipts on your Schedule C.

If you make over $400 in income from book sales you need to take that income and apply self-employment tax on that income.

In addition you need to make quarterly payments for the estimated tax.

If you haven't done so yet. To fix your situation you can file an amended return. A CPA can do it for you... given your income, you should be able to afford it.

As your income grows so it does the likeliness of being audited.

https://www.irs.gov/businesses/small-businesses-self-employe...

Now that you have published your story, your real name and the income you obtained I strongly suggest to do it ASAP.

Thanks! Yeah I mean it's not that different from my freelancing. I've been paying estimated tax and self-employment tax for years. Mostly now it's about selling products (example: I have to deal with New Mexico gross receipts tax, ugh) vs services.

You only need to make quarterly payments if you meet certain criteria, largely if the revenue is above a certain amount and you have a reasonable expectation the revenue will continue.

I got a 1099-K from Gumroad this year, as did my wife. I think they're changing that.

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