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Author Topic: Creative Market's creative accounting reports 100% of sales  (Read 5145 times)

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« on: April 04, 2016, 21:22 »
+8

Creative Market is pulling an Envato-like move and reporting 100% of every sale as earnings paid to contributors to the IRS.

I just got my 1099 (yes, just today, April 4th, I finally got a 1099 from CM), and in looking at it I immediately knew the amount seemed too high. Sure enough, after checking my books they over-reported my earnings by a few thousand dollars. I checked out the forum over their and not surprisingly there is a thread about the issue, and it seems that CM is reporting the full sale price of each item sold as the amount paid to contributors, and then asking contributors to write off the company's share as an expense. So if you earned $700 with CM in 2015, your 1099 will say $1,000, and you have to put down $300 as an expense.

Here's the issue I have with this: I never actually got the full $1,000 (for example), and likewise I have no documentation to prove that I ever actually paid out that $300 as an expense. They are essentially asking us to lie to the IRS and say we both received and paid out money, when in reality we received far less and paid out nothing.

The icing on the cake? The amount they're claiming to have paid us also includes refunds. That's right, money that was taken back from us is still in the 1099s. Mine includes over $100 of unexplained (refunded) earnings that I don't actually have.

I quit Envato over the same kinds of shady accounting practices, and I hate to say it when CM is my #2 earner but now I have to rethink my relationship with them as well. I am beyond tired and frustrated with these companies dishing out ever creative ways to screw us while we're expected to just accept it and be grateful for the opportunity to get screwed again next month.

Worse than the money issue to me, though, honestly is that I was championing Creative Market as the answer to all of the shady companies. They paid a fair rate, they gave the artists great control over their prices, products, promotional tools, etc., they were the company that was going to prove that artists still stood a chance to have success and strike a good partnership with an agency.

Then they made that license change (resale rights under standard license) and eroded some of that good image they had, and now they've gone full-dark-side with this tax move, a play right out of the books of one of the shadiest companies in the business.


angelawaye

  • Eat, Sleep, Keyword. Repeat

« Reply #1 on: April 04, 2016, 21:51 »
+2
Thank you for filling me in. I got my MISC 1099 today as well - 3 days AFTER I filed my taxes - so now I need to file an amended return. (BTW - don't they have to send them out sooner by law?)

2015 was my first year with CM but I knew right away that the number was not right - way way too high.

This must be illegal to pass their earning onto the contributor. I'm really outraged! The amount is NOT what they paid me. I think I have to delete my files now. It hurts me too but why do I have to pay their taxes. Unbelievable!

Hongover

« Reply #2 on: April 04, 2016, 22:00 »
+13
Report them to the IRS.

https://www.irs.gov/Individuals/How-Do-You-Report-Suspected-Tax-Fraud-Activity%3F

Have them get audited and they won't ever do it again.

« Reply #3 on: April 05, 2016, 01:24 »
+2
This is another time when I think that beeing rejected by some agencies is like a blessing ;)
Another reason to focus on and support only trusted and fair place(s)...
« Last Edit: April 05, 2016, 01:26 by Ariene »

« Reply #4 on: April 05, 2016, 06:30 »
+4
...Another reason to focus on and support only trusted and fair place(s)...

The thing is, Creative Market was that kind of place. They've been more than fair with what they offered contributors, and for a few years they were among the best when it came to how they worked with us. They have great support staff, community relations, dialogue with contributors, etc. Just seems that they can't help it lately with missteps, and in particular when it comes to things that the majority of the industry does very differently.

I'm not saying that every company should do everything the same. I have no desire to see innovation diminished because of industry standards when it comes to how companies offer their products, market themselves, work with contributors, etc. But when it comes to things that have very well established norms, and especially when it comes to taxes and financial dealings, there are some things that absolutely should be industry-standard, and Creative Market seems intent on going against the grain on some of those issues, to the extent that it harms contributing artists.

My biggest concern right now is the language used around this tax policy, suggesting somehow that what everyone else knows about this stuff is wrong and has been for over a decade, and that somehow they've figured it all out and their way is the right way. Even in the face of conventional tax wisdom, many years of many companies doing things differently than CM does it, and even when tax professionals (like my accountant) say that they're wrong in doing it this way, they seem to insist that they know better. And that kind of thinking and behavior seems all too familiar in microstock. We all know about companies that insist they know what's best for us, despite mountains of evidence to the contrary, and how things tend to go with those kinds of relationships.

« Reply #5 on: April 05, 2016, 06:42 »
+6
I simply dont understand how they get away with what seems tanatamount to tax evasion....

ShadySue

« Reply #6 on: April 05, 2016, 07:06 »
+1
Another reason to focus on and support only trusted and fair place(s)...
Which are ... ?

« Reply #7 on: April 05, 2016, 07:47 »
0
ShadySue, I'm surprised that YOU ask this question. You are very active on the forum and you should know the answer for your question. We already talked about it in other threads and nothing has changed in last month(s) :)

ShadySue

« Reply #8 on: April 05, 2016, 07:49 »
+1
ShadySue, I'm surprised that YOU ask this question. You are very active on the forum and you should know the answer for your question. We already talked about it in other threads and nothing has changed in last month(s) :)
But new group members don't know that!
I'm not convinced that any of the 'open access' sites are really 'fair', but everyone has their own line on that. I guess everyone submits to those agencies whose various degrees  of 'unfairness' they're able to stomach.
« Last Edit: April 05, 2016, 08:19 by ShadySue »

« Reply #9 on: April 05, 2016, 07:55 »
+7
Report them to the IRS.

https://www.irs.gov/Individuals/How-Do-You-Report-Suspected-Tax-Fraud-Activity%3F

Have them get audited and they won't ever do it again.

Best answer

This indeed looks like illegal activity, looks like they want to bring up their expenses to lower their taxes (depends of country law) and they actually never payed that amount of money.

angelawaye

  • Eat, Sleep, Keyword. Repeat

« Reply #10 on: April 05, 2016, 08:20 »
+1
Even though SS has reduced the EL royalties, I still love them.

I'm secretly desperately waiting for stocksy to accept applications this year though...

« Reply #11 on: April 05, 2016, 08:26 »
+1
You didn't abandon CM when they started giving away  ELs with their standard license? I did. They can do what they like with their taxes.

« Reply #12 on: April 05, 2016, 08:44 »
+2
You didn't abandon CM when they started giving away  ELs with their standard license? I did. They can do what they like with their taxes.

Yeah, but we're still involved from 2015.

« Reply #13 on: April 05, 2016, 08:57 »
0
Good point.

« Reply #14 on: April 05, 2016, 10:45 »
+3
Another reason to focus on and support only trusted and fair place(s)...
Which are ... ?

LOL. Yeah, really.

Thanks for the info Mike. I was wondering how they managed to screw up 40 bucks or whatever paltry sum I earned there, but this explains it. Between these things and 1099-K's, I may need to just write a long letter to the IRS each year explaining that it's complicated.

« Reply #15 on: April 05, 2016, 12:00 »
+1
So,
Wow, so basically they give you a 1099 with the total amount for the stuff you sold...
So it is like you are the "seller of record", or end seller, not them?

So basically is like you will have to declare the expense as comissions paid.

Do they even handle the VAT, do they pay the VAT?

« Reply #16 on: April 05, 2016, 22:24 »
0
...Between these things and 1099-K's, I may need to just write a long letter to the IRS each year explaining that it's complicated.

It's an option on facebook for indicating your relationship status, and it would make a lot of sense to have "it's complicated" as a check box on tax forms for stock artists. :)

« Reply #17 on: April 06, 2016, 19:41 »
0

I found out that some of the over-reporting of net earnings comes from Creative Market calculating what they pay us for the year in terms of total royalties earned through sales, and not by actual cash paid out, as most stock agencies do it.

This seems highly irregular. I'm not sure I can think of another company that works like that. Royalties earned aren't income until they're paid out via PayPal, check, Skrill, bank transfer, etc.

My income on Shutterstock, for example, is what hits my PayPal account each month of the year, not what the site statistics say. Creative Market does this differently as well.

angelawaye

  • Eat, Sleep, Keyword. Repeat

« Reply #18 on: April 06, 2016, 21:00 »
+4
This is the email they send back of which I am sending to the IRS with my amended tax return:

"I am very sorry for my delay. US federal income tax law requires that Creative Market report the royalties earned by Shop Owners as the gross amount (i.e., prior to reduction for the fees charged by Creative Market). Our legal counsel instructed that this is the proper method of reporting. Your net was $246.40. The $200 was what you requested we pay you out on 2015 and has nothing to do with taxes. The IRS considers all monies from sales as part of the gross whether or not you requested it all be paid out or not.".

The amount on my MISC 2015 is $351 so I'm still not sure how they got this number ... Oh well - I deactivated all my files. So shady and dirty...

« Reply #19 on: April 06, 2016, 21:54 »
0
Creative market is one of the fair playing agencies who does this means there is really something bad coming to contributors. Shady but that gives some food for thought on picking agencies in the future.  Those guys giving nearly 70% commission to the contributor can't sustain in the business for long. Either they have to damage contributor or just shut the business. Both are not good for contributors anyway.

Other side, those agencies paying around 15% to the contributors, obviously not going to put the same tax burden to the contributors. Or may be preparing more creative damages...? Lets see. :-X
« Last Edit: April 06, 2016, 22:01 by Stkflvr »

« Reply #20 on: April 06, 2016, 22:50 »
0

I found out that some of the over-reporting of net earnings comes from Creative Market calculating what they pay us for the year in terms of total royalties earned through sales, and not by actual cash paid out, as most stock agencies do it.

This seems highly irregular. I'm not sure I can think of another company that works like that. Royalties earned aren't income until they're paid out via PayPal, check, Skrill, bank transfer, etc.

My income on Shutterstock, for example, is what hits my PayPal account each month of the year, not what the site statistics say. Creative Market does this differently as well.
s

I believe that Fotolia does it that way. I questioned them my first year when my 1099 equaled the total credits earned, not the amount paid out.  Their response was that because I could convert credits to make purchases they issued the 1099 on earnings, not payout.

« Reply #21 on: April 07, 2016, 02:04 »
0

s

I believe that Fotolia does it that way. I questioned them my first year when my 1099 equaled the total credits earned, not the amount paid out.  Their response was that because I could convert credits to make purchases they issued the 1099 on earnings, not payout.
[/quote]

Yes, this sounds correct to me from an accounting point of view.  Amount earned (not paid) is the correct way to report - any cash not withdrawn is a creditor/debtor of the business/individual and goes in the cash flow report not the earnings report.


 

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