How do I file taxes on the income from my blog?
As soon as I put AdSense ads on my blogs, I started receiving income. So, did I have to set up an LLC or some other kind of business? Did I have to pay taxes on this income? What expenses can I write off? It started as a hobby. At what point does it become a business?
I was not the only person to wonder this. It was asked and answered on Intuit’s tax support website, Intuit turbo Real Money Talk;
I have additional income from Amazon Affiliates, however I am not established as a company. Am I able to write off expenses associate with this income?
Yes, you can write off the business expenses for your Amazon Affiliate income. If you received a Form 1099-MISC that shows an amount in Box 7 for nonemployee compensation or a 1099-K and it’s because you did consulting work or other services for someone or a company, based on IRS regulation, you DO now “have a business!” You’re in the business of consulting and the IRS views you as a “company”, and you have to file Schedule C to report that 1099-MISC income. The Schedule C is located in TurboTax Self-Employed version. This is a requirement, not an option!
The good thing about filing Schedule C is the ability to apply any expenses you incurred while performing those services.
Amazon Affiliates income is considered self-employment income and you have to complete a Schedule C which is found in TurboTax Home and Business (desktop) or TurboTax Self-Employed (online).
1099 Income
Amazon, eBay and Google give you a 1099 if you earn over $600.
That doesn’t mean you don’t have to declare the income if you don’t earn over $600. It just means they don’t have to give you a 1099.
The IRS Tax Instructions will tell you whether you have to file, but if you have to file, you have to declare any income, whether you got a 1099 or not. At least right now, if you earn less than $400 from all sources that are not on your W-2, you don’t have to worry about it. That includes all other income that you are not having taxes deducted on.
We just put everything into TurboTax and it calculates it for us.
How Much Will Taxes Be?
If you earn income and you don’t pay any taxes on it ahead of time, you have to pay all of the taxes before April 15 of the next year. This includes not just your income tax, but also your Social Security and Medicare.
You are taxed at whatever your Tax Rate is, anywhere from nothing to 10%, up to 35%.
Social Security and Medicare taxes are another 15.3%. That is both, 12.4% for Social Security, 2.9% for Medicare. They are a tax that is also insurance against getting old or disabled.
Taxes are technically due earlier. If you keep waiting till the last minute, you might end up paying penalties, too. When you complete your taxes, Turbo Tax will help you calculate and pay quarterly taxes for next year. But don’t worry about that yet. Once you are earning enough to pay more than your Social Security taxes, then you can worry about paying quarterly income taxes. At least right now, there is no penalty the first year you end up owing.
We get around this by having my “day job” withhold more taxes. By not declaring my spouse as a dependent, so far enough taxes are withheld to pay all the taxes on the income from our blogs, too.
Business Deductions
Once you earn enough to worry about taxes, you need to start keeping receipts so you can write off your expenses.
Let’s clarify something right here. A tax write off means the amount of money you don’t have to pay taxes on. It does not mean that if you buy a $100 item for your business, you get to pay $100 less in taxes. It means you have $100 less income. But depending on your tax rate, this may mean you pay about $30 less in taxes. Not bad! It’s worth keeping records for.
If you have income, you have a business. If you have a business, it must cost you something. Those expenses are deductible.
TurboTax helps us with that, too. They have a checklist to remind us to deduct anything we can. It also flags anything iffy.
What can you deduct?
These are no question deductible. They are direct business expenses. They are the kind of thing your boss pays for if you work for someone else.
- Office supplies
- Books and subscriptions
- Advertising and marketing
- Hosting and Domain name registration fees
- Computer, camera (up to a limit)
- Software
- Health Insurance
Some things can’t be written off all in one year. If your start-up costs are over $5000, you can’t deduct it all at once. It has to be depreciated over up to 15 years.
Home office
IRS says you can take a Home Office Deduction for the area of your home that is in; “Regular and exclusive use” and is the “Principal place of your business.” IRS: Home Office Deduction
How big is your home office? Calculate the square footage of your house, then the square footage of your office. This percentage of all of your home expenses can be deducted from your income.
So save receipts. If your office is 18% of your home, 18% of your rent, 18% of your utilities… It could even include 18% of mortgage interest, insurance, repairs, a cleaning lady, lawn maintenance. You even get to deduct depreciation of your home. Keep your receipts and enter them when your Tax software asks for them. (Or have them to give to an accountant.)
Job-related Travel Expenses
IRS says “If you’re self-employed, you can deduct travel expenses on Schedule C (Form 1040 or 1040-SR), Profit or Loss From Business (Sole Proprietorship).” IRS: Business Travel Expenses
“Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. You can’t deduct expenses that are lavish or extravagant, or that are for personal purposes.” IRS: Business Travel Expenses
“To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.” IRS: Deducting Business Expenses
Ashley Grant with GoDaddy says; “Don’t expect to get away with claiming a seven-day vacation to Disney World as one of your tax deductions for bloggers. That is, unless you are blogging about every aspect of the trip, and can prove it is a necessary and ordinary expense for your business.” Ashley Grant : Big list of potential tax deductions for bloggers
“Travel expenses for conventions are deductible if you can show that your attendance benefits your trade or business.” IRS: Business Travel Expenses
“Using your car while at your business destination. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.” IRS: Business Travel Expenses
IRS reminds us, “Good records are essential.”
So, are the travel expenses of your to-be-written-later travel blog deductible? I am not going to tell you the answer to that question. That’s between you and God and the IRS.
Remember, if it is iffy, TurboTax will let you know.
Products you purchase to blog about
I am not talking about purchasing inventory to resell. That is inventory, something completely different.
Can you write off anything you want to buy, as long as you write a blog post about it? No.
Ashley Grant says; “Don’t expect to get away with claiming… clothes and makeup just for social media images. Unless you are writing a review about the items in the outfit and the outfit is being used 100 percent for business purposes, you might want to be careful trying to deduct those expenses.” Ashley Grant : Big list of potential tax deductions for bloggers
Arguably, if you are given things to blog about, this is income. “Payment in money, products or services can be considered income.” “…the value of the products is compensation and the IRS would expect to find it reported as taxable income.” sarafhawkins.com/tax-tips-for-bloggers/
We aren’t going to try to deduct anything. But we are super happy that the Google traffic has paid for them!
What if my I’m in the red after I deduct everything?
If your Schedule C is in the negative, this deducts from your income and you pay less taxes. Yes, you can use blogging to lower your taxes. Sorta.
You have to show at least a little profit for three out of five years. If you don’t, you are a hobby, not a business. By the third year you are blogging, you really should be earning more than it costs.