Tax Implications Of Running A Blog 74 Comments
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As most of you know by now, Wednesday is when Modest Money forgets that it’s a personal finance blog and focuses on blogging related tips. I could make excuses about how it ties into personal finance, but I just want to help you all. Ok I also want to pad my stats with extra shares and links…oops did I type that? Did I ever say that my honesty gets me in trouble sometimes?
I’m not sure how many more of these blogging tips I’ll be posting, but I do feel that it is winding down. Partly I don’t know what other topics to cover and also I want to break free from some of the posting commitments I’ve built up with this blog. As my life gets too busy, it would be nice to be fine with not posting on any given day.
If by some chance you’re new to this blog, here are some popular topics covered in some of the previous blogging tips posts:
This week I again have a good blogger friend helping out by providing a post. Justin from TheFamilyFinances.com discusses the tax implications that you have to consider when running a blog. I know from experience that it’s something you need to think about early on, otherwise you miss out on all kinds of deductions.
The Tax Implications Of Running A Blog
For those of us bloggers that are using our blogs to generate a little side income, one thing to always consider is the tax man. That’s right, where there is income there is always income tax. When they say that the only certainties in life are death and taxes, they are not kidding.
Now, I’m going to start out with a disclaimer. I am not a tax professional. While I work in accounting and am fairly knowledgeable about taxes in general, please do not rely solely on my knowledge. When you have doubts about taxes, the best thing you can do is consult with your tax advisor.
Now, that that’s out of the way lets dig into a little more detail about everyone’s favorite subject: taxes. Tax laws will obviously vary by country, and I’m focusing this post on US tax law. Canada’s tax code is probably slightly different, but I think the general idea is the same. Most blogs operate as a sole proprietorship, which means that any blog income gets included on your tax return just like wages or salary income.
Income vs. Profit
The most important tax concept is that you are only taxed on the amount of profit generated from your blog. Notice how I didn’t say the income generated from your blog. Income is the total money that you receive from your blog. It includes things such as a Google AdSense check, affiliate income, money received for paid posts, money received for text links or banner ads…basically any money at all that someone gives you for your blog. Profit is the amount of income that is left over after paying all of your blog’s expenses. This is where it gets really interesting.
What would you consider to be blog expenses? Sure, there are some pretty obvious things, such as the cost of your domain name and the cost of web hosting. But there are soooo many more things that qualify as tax deductible blog expenses. Basically, anything you buy or spend money on specifically for your blog is a deductible expense.
- Have you paid for any website design work, maybe some behind the scenes coding or a nice logo for your header image?
- Have you paid for any outsourced blog work, such as carnival submissions or a staff writer?
- Have you ever been paid via PayPal and noticed the fees that PayPal gets to keep?
Guess what? These are all tax deductible expenses. Generally, these expenses fall under one of the following categories:
Home Office Supplies
If you have a dedicated space and dedicated equipment for blogging, you can deduct amounts paid for things such as the desk you sit at, the chair you sit on, pens, notebooks, calendars, etc. Do you have a photo blog? You can even deduct the cost of your camera. Do you do frequent videos on your blog? You can deduct the cost of a webcam.
Here is where bloggers can find a ton of deductible expenses. You can deduct the cost of WordPress plugins and themes, web hosting, paid advertising, domain name costs, web design, logos and graphics, and even the cost of home internet access.
There are a number of other expenses that are deductible as well. Anyone that recently traveled to FinCon (or other related conferences and workshops) can deduct their travel and lodging expenses. If you have separate financial accounts for your blog and are charged monthly or annual service fees, those can be deducted. If you have business cards or letterhead made, you can deduct those costs as well
One important note is whether your blog is considered a business or a hobby. This is important because a business can have years where your expenses can run higher than your income (meaning you’re at a loss), allowing you to further reduce your tax bill. I’m trying to find a good way of putting it to make sense, so let’s use an example. You have a full-time job and blog on the side. You make $50,000 at your full-time job. Your blog makes $5,000 in income, but your blog expenses this year were actually $6,000 (maybe you went to a blogging conference overseas). If your blog is considered a business, your total taxable income is the $50,000 from your job, plus the $5,000 from your blog, minus the $6,000 in blog expenses for a total of $49.000. If your blog is considered a hobby, your blog expenses are limited to the amount of income received from your blog. In this case, your total taxable income is $50,000 from your job, plus $5,000 from your blog, minus $5,000 in blog expenses.
The general rule to decide whether your blog is a business or a hobby is whether it has made a taxable profit in three of the last five years.
Another important note is to keep detailed records of all your blog income and expenses. If the IRS decides to audit your tax return, you need documentation to support all the expenses you deducted.
Again, before taking a deduction, please check with a tax professional to make sure you are truly eligible for the deductions you’re trying to take.
Author Bio: Justin blogs at The Family Finances, a blog for those of us that are continually working to balance the demands of family, work, time, and money. Life is busy, and we can use all the help we can get to find ways to make it simpler. Also check out his blog to compare the best credit cards.