Taxes on Shapeways store profits?

Discussion in 'General Discussion' started by cwestbrook, Jan 19, 2012.

  1. cwestbrook
    cwestbrook New Member
    Does anyone know how to figure out how/if to pay taxes on payouts from profits from our Shapeways stores? (I'm in the US by the way)

    I feel the answer is probably yes regarding if we have to pay taxes, but have no idea what it would be categorized as or how I should go about it. Maybe it would fall along the same lines as consignment sales?

    If anyone has any info or better yet experience with this it would be very helpful!
  2. ana_xyz
    ana_xyz New Member

    An interesting and important question. I don't know, but I'll dig a round a bit, and hopefully surface some insight for ya ;)

  3. Twopounder
    Twopounder New Member
    Best bet would be to talk with a CPA. Taxes can vary by state, but you will definitely need to claim all your earnings to the federal IRS and pay income tax on it.

    Some states (such as Washington) require that you collect sales tax on any in state purchases, regardless of the medium. This means if someone from Washington buys from my shop, I have to charge them sales tax.

    However, They aren't actually buying from me, but from Shapeways. so I think its a kind of loophole.

    Still, I'd bring up any doubts you have with your CPA. Tax evasion is actually the most severely punished crime in the US.
  4. mctrivia
    mctrivia Member
    me personally I spend everything I make on 3d modeling related expenses so no profits to pay tax on.
  5. Bathsheba
    Bathsheba Well-Known Member
    I agree that it doesn't seem to be a sales tax situation, since we're not selling to customers but only to Shapeways.

    I have wondered whether, now that they're US-based, Shapeways is required to provide designers with income over $600/year with 1099-MISC forms. I'd guess they are -- it's what usually happens when a business pays someone outside (if the someone is unincorporated).

    To add to the fun, if what they pay us is defined as royalties, then it would be income over $10.

    Anyway, I report their payments as 1099-MISC income. It's a good point that if you bought CAD software, or anything else that you used to make designs, you could file a Schedule C and deduct it against that income.

    But I'm not an accountant so don't believe anything I say.
  6. Youknowwho4eva
    Youknowwho4eva Shapeways Employee Community Team
    You need to get Romney's accountant. It's an investment so you should only have to pay 15% right? I believe the IRS doesn't care as long as it's under $500. If you reinvest it into your hobby, you'd have to claim the income but you could claim the expense as well. Of course if you have a business it's all different.
    Last edited: Jan 27, 2012
  7. Bathsheba
    Bathsheba Well-Known Member
    Check for yourself, but I am pretty sure the IRS does care even if it's under $500.
    Last edited: Jan 27, 2012
  8. Youknowwho4eva
    Youknowwho4eva Shapeways Employee Community Team
    I may be wrong. I may be assuming seeing I think I can go to Delaware and buy stuff, and as long as it's under $500 I'm not obligated to report and pay taxes to Maryland. I think it's $500, I haven't come anywhere close to spending that much in a long time.
  9. Bathsheba
    Bathsheba Well-Known Member
    Sounds as though you might be talking about your state's use tax, which would not be the same as Federal income tax.
  10. cwestbrook
    cwestbrook New Member
    Thanks for the insight everyone.

    I mean federal income tax, since we aren't responsible for collecting sales tax on Shapeways sales. I do however collect sales tax from California buyers when I sell on Etsy.

    I'll probably go to an accountant this year anyhow, since I want to get a bit more serious about my business and don't want to spend too much time worrying about if I did something wrong paperwork-wise.

    Thanks again!
    TOM_TOM_TOM Well-Known Member
    I would like to know more about taxation on Shapeways profits for designers. My impression is that this may count as royalty payments reported on Schedule E, but I'm not sure. Shapeways facilitates the manufacturing and sales of the products and we are paid by sales per unit. Or we sell the design to Shapeways in totality where we no longer collect a payment for units sold in which case I think it is counted as capital gains on Schedule D.

    But in some cases where the works of artists and writers are paid royalties, it could be filed under Schedule C, in which case you will have to pay self-employment tax of 13.3% on top of your standard income tax. The benefit of filing under Schedule E is I think it would not be taxed as self-employment income, and you would save having to pay the 13.3%. But then I'm not sure how you would deduct your expenses for designing and prototyping your models. If you declared your income on Schedule E, and your expenses on Schedule C, you would have a business loss, which I think complicates things and might trigger an audit.

    Also, since Shapeways is based in both the Netherlands and New York, royalties can be divided into US sourced income and Foreign sourced income. The products which are manufactured in the Netherlands may be non-taxable royalties, but if Shapeways sends the products made in the Netherlands to customers in the US, then it may become taxable. If Shapeways manufactures the products in New York and sells it to foreign customers, it may be considered Foreign sourced income. IF Shapeways sells these products to US customers then it becomes US sourced income.

    But you would have to take a closer look at the tax treaty between the US and the Netherlands. It's very confusing. There are also issues of whether since Shapeways has both a US and Netherlands based establishment, if all worldwide royalties paid to you from Shapeways becomes US sourced income if you are a US tax-resident, or if all worldwide royalties become foreign sourced income if you are non-resident alien of the US.

    I'm also now a tax-resident of Germany, but I'm a US citizen, so it makes things much more complicated. I would have to read the tax treaty between the US and Netherlands, US and Germany, and Netherlands and Germany. Most of the customers buying my models from Shapeways are located in Europe, so their models are being made and shipped from the Netherlands, but there have been some US customers, and I would assume that they are receiving their models from New York. But since Shapeways doesn't disclose to us which of their factory is manufacturing for which customer, we may in the end be liable for taxes on all of our worldwide royalties, since the taxpayer has the responsibility of the burden of proof.

    Also, how Shapeways is reporting their payments to designers will affect how we declare and categorize the payments. It would be nice for Shapeways to tell us how they are reporting our payments to the IRS, whether it is 1099 and which type. And how they will report income to someone like me who is a tax-resident of Germany but a citizen of the US, where I must declare all income on both tax returns, and how the tax treaties would determine which country gets what tax.

    I could be COMPLETELY WRONG though. Maybe everything just goes under schedule C. But I wonder whether the tax could be lower under Schedule E.

    This is the first year I'm getting shapeways payments, and the end of the year is very near.
    Last edited: Nov 4, 2012
    TOM_TOM_TOM Well-Known Member
    According to this quote from the IRS:

    "You generally report royalties in Part I of Schedule E (Form 1040). However, if you hold an operating oil, gas, or mineral interest or are in business as a self-employed writer, inventor, artist, etc., report your income and expenses on Schedule C (Form 1040)." (IRS PUBLICATION 17)

    It looks like if you are still uploading new models to shapeways (self-employed artist/inventor) then you file Shapeways payments under Schedule C and pay the 13.3% self-employment tax. If you stop uploading models (no longer running a business as a modeler) then I think the shapeways payments becomes a "passive income", not derived out of a self-employment activity, and probably goes into Schedule E.

    The problem I have is that I am now a tax-resident of Germany and a citizen of the US. I don't know whether I am getting my Shapeways payment from New York or from the Netherlands, or if this doesn't matter at all if both countries would claim that Shapeways has a permanent establishment in their own countries and liable for taxation in both countries. Also, as I'm getting the payments from a company outside of Germany, I don't know whether I'm supposed to treat this as domestic (German) or foreign income, and how VAT rules apply.