The Blogging Business and Taxes

The Blogging Business and TaxesOne question that I receive nearly every week from readers is what I do about taxes since I am now a full-time freelancer/blogger. This is a topic that I have been promising for quite some time now, so I’m glad I can finally publish it!

Tax tips for bloggers isn’t exactly the most exciting topic in the world, but it is something that needs to be discussed. As a blogger/freelancer, I have noticed that there are not many articles out there about the subject.

Why is that though? As a blogger, taxes can be a scary thing to think about, especially if you are new to the area or if you haven’t been saving for taxes as you go.

Here are my tips to have a successful blogging/freelancing business while doing your taxes correctly.

 

Remember to keep an accurate record of everything.

One thing that I am really guilty of is being extremely disorganized, and lets just say that this is really hitting me hard right now.

I have receipts and papers all over the place, and I already know that I have lost many receipts. This is probably my number one tax tip for new bloggers.Β For my 2014 taxes, I have been working on staying organized as I go and I have separate folders for everything.

However, for 2013 I am not so lucky. I am still organizing everything so that I can do my taxes, and it is not a pleasant experience.

Always try to keep everything organized and keep a receipt for everything that is related to your business. Also, it is wise to keep a detailed note of what you spent and why you spent that (such as in an Excel sheet). It may seem overboard to some, but the IRS doesn’t like rounded numbers and guesses. They want the exact figure.

 

Remember to pay estimated taxes.

If you are new to blogging or freelancing, then your tax bill once the year is over may surprise you. As a blogger or freelancer, usually taxes are not taken out when you are paid.

With every payment that you receive, you should be setting aside a certain percentage for your taxes. You should not be touching this money, and it may be best to completely push this tax money out of your head so that you don’t consider it “yours.”

Paying your taxes is something that you will probably underestimate the amount you have to pay if you haven’t contacted an accountant or done any research. Estimated taxes are due every quarter. You should try to figure out what you should be paying, because if you don’t pay them at the correct time and the correct way, then you may have to pay a penalty.

Below is when estimated taxes are due.

  • April 15th
  • June 15th
  • September 15th
  • January 15th

 

Don’t forget that you also have to pay self-employment taxes.

You will most likely have to pay self-employment taxes, so do not forget to account for that as well (if you used to work for someone else, your employer used to help cover this).

There are ways to help lower this by forming different types of entities, but this is something that you should contact a lawyer or accountant about if you do not know what you are doing. Articles to read about this include:

 

What if I just blog in my free time and work for someone else full-time? – You will still have to pay self-employment tax on your blogging income.

You can read further about this on the IRS website.

 

The Blogging Business and Taxes

There are things that you can do to lower your tax bill as well.

In order to lower your tax bill by claiming deductions, you need to prove to the IRS that your blogging business is an actual business and not just a hobby.

If the IRS believes your blogging business is just a hobby, then they may not approve of your deductions. According to the IRS, you can prove this to them by showing them that you have earned a profit, the time that you put into your blogging business, and so on.

Anyway, after you have determined that you have a true blogging business, you can then deduct certain expenses as long as they are legitimate and necessary for you to run your business. I wouldn’t advise deducting every expense that you can find or imagine up, as some will trigger an audit.

Always be wise with what you chose to deduct and make sure that you have good reasoning and proof to back up your claim.

Different items that you may be able to deduct include:

  • Your home office. Always be careful with this though as a home office can trigger an audit since many people fake this.
  • Household expenses if your office is in a room in your home. This could include a share of the business’ amount of rent (be realistic with this – if your mortgage is $1,000 and you are claiming that rent on the room is $1,500, that will most likely not work), electricity, gas, trash, sewer, etc.
  • Office supplies and furniture.
  • Internet expenses.
  • Applicable phone costs.
  • Meals. You can only deduct 50% and there has to be a legitimate reason for this. Keep good record of who was there, when it was, and what was discussed.
  • Advertising and business cards.
  • Certain car expenses.
  • Conference fees related to your blog. An example would be if you attended FinCon.
  • Website related expenses such as for hosting, design, and so on.

 

Note: Please keep in mind that I am not a tax professional and I never was. I complied all of the above information by doing research and contacting some accountant friends. When I tell others that I used to be a financial analyst they tend to bombard me with tax questions and I am not sure why πŸ™‚ The above post is meant more as a guide but you should always contact an accountant or a lawyer if you have any questions.Β Each case does vary with each company/person, so everything does not apply to everyone.Β 

 

Are you a blogger? How do you handle tax time?

What tips do you have for a new blogger trying to manage their taxes?

 


Comments

The Blogging Business and Taxes — 49 Comments

  1. Last year was the first year we had any income from our blog (but it was pretty small). But we’re still waiting on a 1099 or something from Google on those adsense earnings. Do you know when these usually come or if you somehow need to request them? Thanks!

    • Congrats Michelle on making the switch! It’s really hard to say, as it depends on multiple things. The self-employment tax rate is 15.3% and that is on top of your normal income tax rate, so in some cases 20% may not be enough. If you are unsure, I definitely recommend contacting an accountant.

  2. Taxes are so confusing to me. I need to find some kind of class to take to get more information for the loads of questions I have! Do you know how much you have to make before you have to file as self-employed? I know I’m going to need to be doing that this year, just not sure when. You pay self employment taxes quarterly, but how does that work…when April comes around are you paying for April of the previous year or just for the past few months since the last time you filed?

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  4. Keeping good records can’t be overstated! Not only for taxes but also just to keep good data on everything. I kept crappy records the first couple months that I was actually making money and it came back to bite me. You really can’t be too detailed in your record-keeping, either. Unfortunately for many bloggers it’s not a full-time gig so I’m sure many are like me where organizing and documenting gets a backdoor to the money-making activities like producing content, creating things (spreadsheets, tools, other things of value) and marketing. I’m afraid to calculate my taxes this year. I know I have to pay in, it’s a matter of how much, though. I have a sizable amount in my biz account and I’m just praying that most of it’s not going out the door!

  5. Good post Michelle! I hate dealing with taxes, but have learned that keeping things organized helps a lot. We also review all of our stuff monthly so we don’t have to deal with it all at once. I hate sending those estimated payments but always remember that the more we send means we made more. πŸ™‚

  6. Thanks for writing this, Michelle! I just started making extra income late last year so am very new to all this and it’s certainly confusing. If my extra income starts to increase significantly, I think I’ll need to get some professional help. It’s probably worth it!

  7. I’m not super organized with my freelance income, but setting up a file called “2013 taxes” has helped. Whenever I have anything related to taxes — whether it’s a receipt for a deductible expense or an invoice I sent out — I stick it in the file. For my husband’s regular pay stubs, though, I just put those in the “2013 pay stubs” file. If I put it in the general “taxes” folder, the important stuff would probably get lost.

  8. sill question alert: I’ve heard that you have to file taxes for income before deductions. 2013 was the first year that started to sell ads on my page and I ended up spending more on advertising than I made. Example: Made $500 but spent $700, so I’m in the hole -200. Do people in that situation need to file or it still considered a hobby by the IRS.

    Thanks for this post!

    • Hello Nicole! Thanks for stopping by. I’m going to try to help you out the best that I can.

      You still need to report the income and expenses to the IRS. You should report the income and expenses to knock out the income.

      • Good answer, Michelle! I’m a CPA and I always tell my clients to record both the income and the expense. Just having a loss does not mean the IRS will classify your blogging as a hobby. They actually use 9 tests to determine business or hobby.

  9. Remember when taking Business use of the home into account, the area can ONLY be used for business. If it can be or is used for something else don’t take this deduction. So blogging from your kitchen table or family room and trying to claim this as business use of the home will probably get shot down and this is where many people get in trouble.

  10. Michelle, thank you so much for this post. I’ve noticed some of the Canadian bloggers with posts addressing taxes. I’m happy to see on Stateside! Will book mark this post.

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  14. The IRS simplified the Business Use of the Home deduction for 2013. Now you can just take the square footage of your home office (used regularly and exclusively for business) multiplied by $5/sq ft. So in my home office that is 14′ x 12′ = 168 sq ft * $5 = $840 tax deduction. Simple! So much better than the longer form where we had to find utility bills, etc. There’s a max of $1500 (300 sq ft).
    http://taxesforwriters.com/irs-simplifies-home-office-deduction/

  15. Very informative post! I’m not going to lie, I hate taxes and tax season. I’ve been taking my taxes to an accountant. I think having two jobs and investments is enough of a headache for me and would rather not deal with doing the taxes. Haha.

    Would you happen to know if your Paypal invoices are enough to give to an accountant when they are preparing your taxes, in regards to side income? Does Paypal create any type of tax document???

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  17. A great first step guiding new bloggers trying to handle the tax consequences of their online income. The estimated income taxes are annoying to deal with and the self-employment tax almost makes it seem like it discourages individuals from becoming self-employed, but I guess if you are making enough money, it’s all worth it.

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