The fourth quarter is rapidly approaching. As we begin to wrap up the year, one of the things to consider is paying taxes. Do you know what you are required to report? The following guest blog post, written by H&R Block, aims to help you accurately report your blog earning.
Seems like just yesterday you were the only one reading your blog, but then you started getting comments – from other people. Companies took notice and suddenly you started seeing some re$idual$. You know what I’m talking about: cabbage, moolah – cash! To you, it might be just a little mad money, but the IRS has a different take.
Have you considered what your blogging money will mean when you file your taxes? If it’s just a little cash, is it really income? Does it really matter?
Yes, it does matter. And this isn’t a lesson you want to learn during an IRS tax audit. Seriously, tax issues in regard to blogs aren’t just things Arianna Huffington and Perez Hilton need to know, so take heed.
What is income?
The income sources taxpayers are most familiar with are wages, salaries, interest, dividends, tips and commissions. Other income comes from a variety of sources – some of which many people don’t even realize are considered “real” income sources, and therefore are taxable.
The money you receive from writing your blog likely falls under the category of “other income.” For bloggers, these other income sources generally include fees for selling blog posts, advertising revenue, fees received when another website uses your content, payment for including a partner’s link in a blog post, and barters and exchanges for goods and services (e.g., product trials and endorsements). The bottom line is that “where” the money came from doesn’t matter because it is taxable income.
Even if you only occasionally make extra money from blogging, be sure to keep track of what you earn so you can file an accurate income tax return because that money is income and it is taxable. So, even if you don’t get a 1099 or W-2 for the money you earn, reporting the income is still required by law – and this includes cash.
Whether your blogging is a hobby or a business isn’t just a matter of semantics. Based on the correct classification, how you file your taxes will be impacted. The following explores both scenarios.
What if my blog is just my hobby?
A hobby is an activity engaged in infrequently and not to make a profit. A taxpayer with a hobby must report all income generated from the hobby activity.
As a hobbyist, the taxpayer may deduct all related expenses as miscellaneous itemized deductions, but the deduction is limited to the total revenue from that hobby. Plus, you can only deduct the expenses that are in excess of 2 percent of your adjusted gross income. If you don’t itemize your deductions, then you won’t be able to deduct your hobby expenses.
“If you blog for fun infrequently and you make money only occasionally, then it’s probably a hobby,” said Jennifer Rempe, tax analyst at The Tax Institute at H&R Block. “Just remember that you still need to report this money as income on your tax return.”
Did I accidentally start a business?
When blogging becomes your main source of income or your full-time job, your hobby days are over; blogging is now your business. Part of the definition of operating a business is engaging in an activity regularly and with the intent of making money in a field in which you have expertise. For bloggers, business activity also could include contacting other bloggers for tips about how to increase exposure and thus increase revenues.
If you are the sole proprietor (you aren’t incorporated and didn’t form an S corporation), these are some general rules for operating a business:
- Report income and expenses on Schedule C
- Use the self-employment tax estimator to determine quarterly payments: Generally, self-employment tax must be paid if your business net income is more than $400 (taxes haven’t been withheld from this money). This money is credited to your Social Security account and you can deduct half of it even if you don’t itemize deductions
- Claim tax deductions for ordinary and necessary business expenses: Expenses directly offset income and you can show a loss – this is a BIG deal. A business must make a profit in 3 of 5 years or it will be reclassified as a hobby by the IRS – this is a BIG deal, too.
Are any of my blog expenses tax-deductible?
The costs of blogging can add up, but there could be a silver lining for you in the way of tax deductions.
Following are some common deductions bloggers may be eligible to deduct:
- Blog hosting fee
- Business use of computer (To calculate this, a log must be kept of when it is used for personal use and blog work)
- Advertising and marketing
- Education (e.g., seminars, books and trade magazines)
- Bank fees
- Legal fees
- Tax return preparation fees
One really big, popular tax deduction people talk a lot about is for expenses associated with a home office. This is a highly scrutinized deduction and the rules for eligibility are quite strict: the room must be in your house, be the principal place of business and be used regularly and exclusively for business. So, transporting your laptop from one comfy spot to another in your house as you bang out your posts means you don’t qualify for this deduction. So, don’t eat where you blog – or do anything else there – if you hope to qualify for this deduction.
So, what you’re saying is…
If income was earned, despite the source and the amount, it is required by law to be reported to the IRS. For more information about other income and where to report it, read IRS Publication 525 or consult a tax professional.
Teresa L. Clark, H&R Block
Not knowing the difference between a tax credit and a tax deduction is something many taxpayers struggle with and I admit I used to be able to relate to that kind of financial confusion. Thanks to the tax experts I work with on everything I write, I get to look like I know what I am talking about. My primary responsibilities at H&R Block include writing press releases in – of all things – plain English. This is when not having a tax background comes in handy at H&R Block; if I can’t understand it, most taxpayers won’t understand it either.