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.
Online Expenses
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.
Other Expenses
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
Important Notes
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.
74 Comments
This is a very good post, I will just throw a word of caution… business use of the home is a huge red flag to the IRS, so be careful when taking this deducation and talk to a tax professional (CPA, Enrolled Agent, etc).
As always thanks for the great information and insights!
Very true. I always suggest talking to a professional in these situations. Make sure you can back up your expenses and you are following the code to the letter and things will turn out OK.
Lance @ Money Life and More recently posted..Two Huge Problems with Dividend Stocks Right Now
I agree that business use of the home is one deduction that a lot of people claim incorrectly, and that’s part of the reason why I didn’t even mention that one in the article. That could be an entire topic in itself. It’s best to consult with a tax pro on that deduction.
Justin @ The Family Finances recently posted..An Afternoon of Fun For Only $5
I’ve always claimed part of my home as an office, but I only claim a small percentage as the area required for my side business.
This is fantastic. So far, I think I’ve made less than I’ve spent, but there’s a lot of things I hadn’t thought about, so this is really great to know!!
Cat recently posted..Negotiating with utility companies
This is my first year blogging, and I know I have enough deductions to offset everything I’ve earned this year (which isn’t too much). But as things progress, it will really pay to be aware of all the things you can actually deduct.
Justin @ The Family Finances recently posted..An Afternoon of Fun For Only $5
This is all very interesting to know! My income from my blog has been growing, and I have been constantly thinking about all of this.
Michelle @ Making Sense of Cents recently posted..Extra Income During the Holidays
In your case you should definitely be prepared. I’m sure you’re making enough with your blog that it will be much more than any deductions and expenses. Be sure you keep all relevant receipts.
I know some people working from home who also deduce a % of their rent and utilities as their “home office”, not just desks and supplies. I don’t know if that would apply to blogging.
Thanks for the reminder about income and profit, I was thinking wrongly that there was nothing to declare until one turns a profit… will start collecting my receipts!
Pauline recently posted..September goals review and October goals
The key to deducting a portion of their rent and utilities is that you have to have a designated area of your home that is used SOLELY for blogging and nothing else
Justin @ The Family Finances recently posted..An Afternoon of Fun For Only $5
That is the tricky part of it. If you have just one computer in your home, it’s pretty obvious that you are likely not using it entirely for your side business. I don’t know how they would prove otherwise though.
Yep, there are tons of overlooked tax deductibles and write-offs for a simple hobby turning profits. As one financially-savvy friend once imparted, ‘to dissuade the taxmen from cometh, find a hobby and transform it into a side business, somehow.’ (He became a beekeeper.)
I’m not sure how your side business being a hobby would prevent the taxman from coming. If anything, I’d think having a side business would increase the chances of being audited.
Well, you managed to come up with a post that bridged the gasp between blogging and personal finance!
When I was a teen, somebody had told me that self-employment income under $4000 didn’t need to be reported. I just learned that that isn’t the case this year. Very happy I learned that BEFORE I actually made any money!
I think that may have been true for you as a teen. Something like if your income is lower than the amount for a personal exemption, you don’t have to file. Of course, it would still pay to file to get back all the tax your employer withheld. But your blog income simply gets added together with the income from your job, so you technically need to include in your taxes even if you only made $100.
Justin @ The Family Finances recently posted..An Afternoon of Fun For Only $5
That’s right. Any extra income needs to be reported, no matter how small.
Great post! My wife and I became intimately aware of all the different deductions you can take when becoming self employed a few years ago. I had always done my own taxes, but decided to go the route of using a CPA as it was getting beyond my knowledge level. He’s definitely worth the cost.
John S @ Frugal Rules recently posted..How to Save Money and Not Spend $300K Raising a Child
Once my blog starts earning a decent amount, and my tax situation gets more complicated, I’ll be looking into the CPA route as well. Though, I’m in the process of earning my CPA, so maybe I’ll still just do it myself, lol.
Justin @ The Family Finances recently posted..An Afternoon of Fun For Only $5
At least for the first year I recommend hiring someone to help you. Then you can follow their lead as to what deductions can be made. In your case though Justin I’m sure you can handle it. Then again I guess you’d have some good accountant connections.
Great heads-up post – with enough time to fix things before the end of the year if needed. I’ve not made a dime off my blog, but you never know…
If you having any plans of making money from your blog, it’s definitely something to keep in mind, especially when you make any purchases that could act as deductions.
As this is my first year blogging, I’ll be paying taxes on the income for the first time ever. I’ve been concerned with what I can deduct and can’t, and while I’m ultimately rely on my tax professional, it’s good to know how much I should be able to write off!
Considering I post recipes on a weekly basis and use our new camera primarily for that, I’ll be pretty pumped if I can write off that $900 expense!
I would think you could write off that camera, but since your work is not a photography business it might be a red flag. I’ll have to remember that if I ever get around to getting a camera. In my case I really don’t want to set off red flags though.
This is something that is certainly on my mind. I feel blessed to have made some decent money already with my blog (something I hadn’t originally considered would be possible for a while). The UK has different laws, but this is a nice prompt! Thanks
Savvy Scot recently posted..Change Your Life Series – Step 1 Exercise
Yes I’m sure UK laws vary a bit, but it’s probably fairly similar. Ultimately you still have to pay attention to what you can deduct and what income you need to claim.
I plan to get all of the expenses the tax code says I can take. I have a CPa license and wworked at a couple CPA firms so between that knowledge and the knwoledge of a couple of friends I shouldn’t have too much profit left for taxes.
Lance @ Money Life and More recently posted..Two Huge Problems with Dividend Stocks Right Now
You should start a tax business for bloggers. Kinda like crystal for advertising…we all need help
Funancials recently posted..Presidents are at the Mercy of the Business Cycle
Interesting idea. I think a lot of bloggers would be interested in getting tax help from a fellow blogger. The only problem is that it is probably a lot tougher to do remotely instead of in person. People don’t necessarily want to scan and e-mail all receipts.
You would also need to know each individual state’s tax code and regulations, as bloggers are from all over the country. I think having a tax column on my blog is in the very near future, as there are so many choices we make every day that have tax implications, exspecially if you run a profitable blog or small business (heck, evenf it’s not profitable!). I’ll see if I can team up with some other tax pros out ther eto make sure bloggers get all the info they need to do their taxes and make the most of all deductions/credits
Jacob @ iheartbudgets recently posted..5 Ways Being a Stay At Home Parent Saves You Money
Sounds like a good plan Jacob. It would be tough to know all the different rules in each state. Here in Canada I believe it’s pretty much the same tax rules across the country. I think the only difference is the amount they charge for sales tax and the provincial income tax exemption may vary.
Really good to know the kinds of things to think about! I have to make sure I keep decent tabs on things, for tax time!
Anne @ Unique Gifter recently posted..How to Write an Awesome Wedding Card
It’s always best to be properly prepared ahead of time. I know from experience that it can be stressful running around trying to organize things at the last minute.
This is a great intro post to this topic. I think I’m going to have to do my own research to tailor this information to Canadians, but from what I can tell, it’s mostly the same.
Jordann recently posted..The Evolution of Minimalism
You should write a post about this too when you’ve done your research for Canadians. I have a vague idea of what I’m supposed to be doing, but for all I know some of it could be done incorrectly.
Oh jeez, I haven’t even thought about taxes with the blog. Man, something else to consider. Barf. — thanks though! This was helpful, it’s something I’ve got to start thinking about.
TB at BlueCollarWorkman recently posted..The Blue Collar View on Starbucks
Do keep it in mind TB. During that first year it’s pretty easy to just see all extra income as pure profit. You can’t forget that the tax man wants a chunk of it. Provided you make proper deductions, you should be able to soften the blow.
I was just talking to Andrea from SoOverThis last night about getting some information on tax stuff. Great article.
DebtsnTaxes recently posted..Dedication
Andrea probably knows a fair bit about this too. If a blogger is making enough money during their first year it might be worthwhile to talk to a tax professional early on to make sure there isn’t anything they can do ahead of time to maximize deductions.
Great to be thinking about these things as the year winds down. I am a tax professional, and I agree, most people miss the majority of their deductions when running a small business, and actually try to deduct things that they shouldn’t. Getting a good tax professional to prepare your tax return for your small business is WELL worth the investment (and I say that coming from knowing nothing about taxes 5 years ago, to what I know now. I could have saved loads of cash!)
Jacob @ iheartbudgets recently posted..Why I Am Not Refinancing My Mortgage
I’m thinking I’ll be paying someone to do my taxes again this year. I’m just not sure how to tell how qualified someone is. Like is it really worth paying someone hundreds when some guy on craigslist will do it for less than $100?
Personally I wouldn’t use anyone who wouldn’t be willing to represent me if I were to get audited. The guy charging $100 probably would not be willing to do this. Your best bet may be finding someone who is an Enrolled Agent. Many times they know more about the tax code then many CPAs and many IRS agents.
The gentleman I work for is an EA and will turn away people if they want him to try to do something shady on their taxes, because part of his guarantee is that he will represent you (at no additional cost) in from of the IRS/State.
Funny you should mention that Brian, as I am an Enrolled Agent
Jacob @ iheartbudgets recently posted..5 Ways Being a Stay At Home Parent Saves You Money
Interesting point Brian. It would be nice to have someone represent me in the case of an audit. I just wonder if that would apply to previous years where he did not do my taxes though. My issue is that I feel that beyond having side income I think my deductions are pretty basic. It’s not like I’m claiming vehicle expenses or dinners with clients or anything like that.
I ran a business from home and deducted so many things from my taxes: from hosting fees, to advertising expenses, computer chairs, new laptop used for business purposes, a portion of my apartment … you name it. Of course I had a CPA advise me on what to include and what brings up red automatic red flags so this was not an area of expertise for me. I agree with many cautions in previous comments, make sure you know what you’re doing or talk to someone who does.
That’s always good to check with a professional before trying to deduct everything. The last thing you want to do is raise red flags and then have to waste time with an audit.
Nice guest post, John. When I was young in my career I had no clue what to claim and what I couldn’t. Because of that, I ended up owing the IRS MUCH more money than I would have if I’d paid attention to the rules.
AverageJoe recently posted..5 Methods I’m Contemplating to Avoid American Airlines this Fall
I’m in the same boat. Early on I know I missed out on deductions by not keeping receipts and by being ignorant. Hopefully I didn’t deduct anything that I wasn’t supposed to. At least enough time is passing that some of that early income is outside of the audit range.
I can relate to having a busier life. I find it a little challenging to try to post twice week, much less once a week. Typically, when I do post something I try to be meaningful. Therefore, my blog is not so much of a daily journal.
This post was really good. For myself, I keep track of my expenses using an excel spreadsheet and save my receipts. Some people use Quicken, but my spreadsheet works for now.
Ornella @ Moneylicious recently posted..SpringCoin Unveils New Debt Negotiatior Tool
I just use spreadsheets too and then input it all into tax software at tax time. I guess it might simplify things if I was entering data directly into the software throughout the year.
I would just post once a week, but I know that would really limit my traffic and other stats. Since even my personal rambling gets a bunch of tweets, I figure I might as well keep it up.
Good to have as a reference – though we’re pretty far from this making an impact on our taxes, yet! =)
Then it’s the perfect time to get knowledgeable about the topic. It’s better to know ahead of time rather than figuring out too late and not having various receipts.
Hey, Jeremy and Justin:
Just yesterday, I started using Outright.com, a free web tool that tracks your income and expenses – making it easier to see where all the money is moving and in what direction.
This is an area I need serious help with and so this post naturally caught my attention. Thanks, Justin for covering it as I am sure I’m not the only one with questions on this topic.
p.s. Would love to see more articles on taxes, Jeremy. Thanks!
Missy recently posted..Free Sample: Sore No More
I would cover more tax topics, but it’s definitely not a strength. I’ve been paying taxes on my own side income since 2005, but that doesn’t mean I know what I’m doing in that area. Plus I don’t know how similar the US tax laws are compared to Canada.
Another thing to consider: If you’re making enough income from your blogs you may need to make estimated tax payments 4 times a year as well. Our tax system is a pay as you go system, so you need to meet safe harbor requirements if you don’t want to pay penalties for underpaying your taxes throughout the year.
The safe harbor requirements include owing less than $1000 in taxes at the end of the year, withholding 100% of last year’s tax liability, or withholding 90% of this year’s tax liability. Personally I just pay 100% of last year’s liability to be safe.
If you don’t think you’re going to meet those safe harbor requirements, you’ll want to consider making those estimated tax payments, or increasing your withholding so you don’t have penalties.
http://www.biblemoneymatters.com/dont-forget-to-make-your-estimated-tax-payment-for-self-employment-income/
Peter recently posted..Top 7 Best Android Apps For Improving Your Finances
They have a pretty similar system in Canada with tax payments throughout the year. I don’t know the specific limits though. One year I did disregard the installment payment notices and they ended up charging me some kind of penalty or interest on that amount. It is frustrating to have to pay extra after handing over a big lump sum tax payment.
Thanks for the info. Not quite to the profit level, but will hopefully get there someday.
Kim@EyesontheDollar recently posted..Rental Property Series: How Much Did It Cost?
I’m sure you’ll get there in the next year. If you ever need help in that area, you know who you can shoot an e-mail to.
Justin, this comes with perfect timing! I was just thinking about how I was going to handle this for my tax return. This pretty much clears up my major quesiton about whether its income or profit you report.
Is there a significant difference in tax rate whether you choose hobby or business? Do you need an LLC to declare it a business?
MyMoneyDesign recently posted..SB1040 Pension Plan Options – Option 3
The business vs. hobby distinction can both be used on an individual tax return. The difference is just that the deductions for a hobby are limited to the income generated, whereas the deductions for a business can actually go beyond the income generated. In other words, you can use some of the loss generated from your blog to further reduce your taxable income.
Justin @ The Family Finances recently posted..An Afternoon of Fun For Only $5
I wonder what the point of claiming something as a hobby is then unless there were absolutely no deductions you could claim. I don’t think there is such classification when doing taxes in Canada.
If blog is your side gig, it can definitely help you offset your personal income tax, if you pass the loss(assuming that you have more in expense than what you make through your blogging activities) through K-1.
For example, even $2000 in loss can save you over $500 if you are in 28% bracket.
Unfortunately I think that is rarely the case with a blog. During the first year some blogs might report a loss, but a lot will find ways to make money during that time. I guess once you start claiming various expenses as deductions then it becomes easier to claim a loss.
There is so much to think about when it comes to taxes! Honestly, when it comes to my blogs I would rather spend that time creating content, emailing folks etc. Hell, I’d rather stare out the window than do my taxes.
Thankfully I have an accountant to do it for me! I pay her $200 to file it, and the last two years she’s found expenses she can offset to claim money back for me. She got me a tax rebate of $300 on my iMac, and when I bought a site for $8000 in January, she managed to get me a refund of almost $800.
Don’t ask me how, I just smile and pay her.
Here’s my one tip: Use PayPal for EVERYTHING if you can. Makes it so much easier to get invoices, receipts etc.
Hate PayPal? Use a specific bank account just for your blog so it’s easy to see incomings and outgoings.
That’s a good tip about using paypal or an exclusive bank account. I know I put some stuff on my credit card and it is a bit of a pain weeding through the transactions to find ones that are deductions. It sounds like you’ve found a good tax person to use. I probably should try to find someone I can trust to help me with that each year. It would make the whole process go so much smoother.
Thanks again for the useful information. This totally relates to where we are right now!
Holly@ClubThrifty recently posted..Working as an Employee…and Making the Best of It
No problem Holly. Well all I did was publish Justin’s useful info. You’re welcome on his behalf though
Justin,
Good article.
I’ll second (or third) what was mentioned about the importance of having a good accountant to do your taxes. They can save you a lot more money than you will ever spend to hire them.
I have an accountant who is extremely helpful, not only for doing the taxes, but also because I can talk to him about business decisions that I am considering. He can point out the financial implications of the alternate paths that I can take.
Not only an a good accountant save you money on your taxes but he saves you from the headache of trying to do the work yourself. I know that whenever I try doing my taxes on my own it’s never a fun experience.
“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.”
Fair point. Really though, if you are intending to make a profit, it’s not a hobby.
Canadians are encouraged to read this to find out more.
http://www.cra-arc.gc.ca/E/pub/tg/rc4070/rc4070-11e.pdf
Mark
My Own Advisor recently posted..September 2012 Dividend Income Update
Thank you for providing that info for Canadians. I think you’re completely right about hobbies. If it’s intended to make profit I’m not sure how it could just be classified as a hobby.
I’m going to go back up and read all the comments in a second but thanks for posting this. I was just wondering the other day how this was run in Canada. Cheers Mr.CBB
Canadianbudgetbinder recently posted..September 2012 Net Worth Update Canadian Budget Binder
If I was more knowledgeable about Canadian taxes I would give some advice about this. I just kinda wing it based on what accountants have done for me in the past. With any luck I’ve been doing it right.
I know you can’t claim a loss every year in your business otherwise the government will obviously wonder why you continue to run the business right? Damn taxes are way too confusing. Flat tax rate, no deductions, please! haha
Harry @ PF Pro recently posted..Upgrading Your Smartphone: My Switch From the iPhone 4 to the Samsung Galaxy S3
Yeah I’m sure that would raise a red flag. Some companies do lose money for more than one year in a row, but it would seem unlikely for a small business to be able to survive that for long.