Tuesday, March 27, 2012

Blogging and Taxes

It's that time of year again! Time to file our taxes!

Is this how you feel about doing your taxes? It's OK. Accounting and monkeys aren't everybody's favorites.

Since many of you lovely readers are also bloggers, and it's approaching the tax filing deadline in the US, I thought I would share a few tax tips for bloggers. Keep in mind that everybody's tax situation is different, so you should consult with your accountant or the IRS regarding specific questions.

Reporting Income

First up, you should be reporting all sources of income from your blog. It doesn't matter whether your blog is just a hobby or your full time job. (More about that at the end.) The IRS wants to know about everything. I previously wrote about monetization, so you might want to swing by that post to jog your memory of different sources of income.

Unless you're rolling in the dough, like greater than $10 million of average annual gross receipts worth of dough, you'll be reporting income and expenses using the cash method. So when you receive payment, it's income. When you pay for something, it's an expense. Capice?

Blogging Expenses

On the postive side, you can offset your blogging income with blog-related expenses. The following are several examples of blogging expenses. However, if some of these expenses are also used for personal use (like Internet access) you should only deduct the portion that actually relates to blogging. For example, unless you're a fashion blogger, time spent online shopping shouldn't be deducted.

Internet-related Expenses
Blogging requires the Internet, duh! And while having a blog is fairly inexpensive, there are still some items you can expense:
  • Hosting fees through Bluehost or Go Daddy. I'm just on Blogger, so I don't have hosting fees.
  • Domain name registration fees. For example, when I purchased fiscallychic.com
  • Internet access fees. This could be your Internet at home, access through your iPad, paid wireless hotspots at the airport, etc. 
  • Font, photo, or music downloads for your blog. I know of several photography websites that have music playing in the background.

Blogging also requires a computer (or something to access the Internet)! Think about deducting a portion of:
  • Your computer, iPad, or iPhone 
  • Your fancy new camera. Or even your point and shoot. And don't forget web and hand-held video cameras.
  • Software such as Photoshop or TurboTax.

Making it Pretty
You have a computer, the Internet, and a blog. What about making your blog pretty? If you hired someone to create a logo, header, or custom design for your blog, you might have a deduction.

Now that you have a blog, it's time to get the word out! There are several potentional blogging expenses that relate to promotions:
  • Purchasing ad space on another blog.
  • Having a self-sponsored giveaway on your blog. Like when I purchased and gave away a $50 gift certificate to One Sydney Road.
  • Giving away some of your products or services on another blog. For example, I gave away two pillow covers on Stephanie's blog.
  • SEO services.

Learning, Travel, Meals, and Entertainment
These days, there are all sorts of great blogging conferences and ways to learn about blogging. I went to the Financial Blogger Conference this past year or you may have been to Alt Summit. If so, you can deduct some of the following expenses :
  • Blogging conference, e-book, or online class fees. Also keep track of books, magazines, and online subscriptions that relate to your blogging topic.
  • Transportation to said blogging conference. Or going to a local blogger meet-up. This could be on a plane, train, or automobile.
  • Hotel charges while at said blogging conference.
  • 50% of dining charges that relate to your blog. Think about dinners while at a conference, coffee dates, etc.

Office Stuff
Did you buy new things for your office? How about getting a new desk, chair, or light? Don't forget to keep track of the little stuff like business cards, file folders, letterhead, envelopes, Post-it notes, etc.

Professional Stuff
I'm a CPA, so I keep up my Illinois license and am a member of the AICPA. Several other industries have professional associations and licenses. If fees for these organizations relate to your blog, they may be deductible.

Other Stuff
This is a great blurb I read from 6th Street Design School's Alt Summit recap: "Caroline Devoy spoke [about tax and accounting for bloggers]. Basically you can write off what you blog about if you feel it is promoting your business or is a business expense. You need to be careful though as to how you label things. Make sure you call them 'Creative Supplies.' "

Here are some other one-off expenses:
  • Hiring a photographer for headshots or to take pictures of your products
  • Postage to mail invitations to blogger events or to ship items to a giveaway winner.
  • Post office box (if you use one solely for your blogging business)  
  • Professional services. Maybe you hired a lawyer or accountant to create a LLC or file your tax return. 

The Bottom Line

The kicker is how much you can deduct. If your blog is just a hobby, losses from blogging may not be used to offset other income (like your full time job). So if you earned $500 through blogging and spent $700 on blogging expenses, you can only net to $0. $500 would be reported as hobby income and $500 would be claimed as an itemized deduction on Schedule A.

But if your blog is considered a business, you can report a net loss on your tax return. Using the example above, you can report a net loss of ($200). Sole proprietors file a Schedule C.

But what's considered a business by the IRS?
  • Does the time and effort put into blogging indicate an intention to make a profit? Do you treat your blog like a business? Tracking your income and expenses, creating a separte bank account, and registering as a business are all ways to show your intention of treating your blog as a business
  • Do you depend on income from your blog?
  • If there are losses, are they due to circumstances beyond the your control or did they occur in the start-up phase of your blog? Think about your initial design, domain name registration, purchasing Photoshop, etc.
  • Have you changed methods of operation to improve profitability? For example, have you increased ad prices? Or found other ways to monetize your blog?
  • Do you or your advisors have the knowledge needed to carry on the blog as a successful business? If you write about fashion, are you a stylist? Have you taken additional blogging classes to improve your blog?
  • Have you made a profit in similar activities in the past?
  • Does your blog make a profit in some years? The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year.
  • Can you expect to make a profit in the future from the appreciation of assets used in the activity? In laymen's terms, are you growing your readership, creating new content, and/or creating new products (like an e-book) related to your blog?
Keep in mind that these are all considerations of whether your blog is a business or just a hobby. One question will not make or break it. Think about your responses to all of the answers before making the distinction.

Also, your blog might not be a business on its own, but it might support another business of yours. If you sell a product, your blog might be used as a way to promote that product. So blog related expenses might be part of your overall promotional expenses.

I hope you found this helpful! I know that everybody's tax situation is different, so you should consult with your accountant or the IRS if you have specific questions. And if you don't think you'll be able to file your 2011 taxes by April 17, 2012, you can always file an extension!

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  1. Thanks cathy! Great read, and I'll need to remember this for next year - I didnt claim any blogging expenses this year, but I had some.

  2. What a great article! My blog is currently under "hobbby" status, but this is great info to keep in mind in the future. Thanks! I am tweeting it now...

  3. Great article! I am currently a "hobby" blogger but I am sure this will be very useful in the future. There were a lot of tips in there that I really hadn't thought of, like writing off coffee dates if it is a blogging brainstorm session. I am tweeting this now...

  4. I'm glad this post is helpful! Share and share alike!

  5. This is great! I'm studying Tax right now, so neat to see accounting and the blog world combine

  6. What about an etsy shop? I treat it as a business and file with the IRS but I don't depend on the income and just do it when I have time...or inspiration. :) I created in my sons name when he passed away.

  7. Thanks for the great article! I have a website for moms and take time to talk to managers/owners when I take my kids to a playplace (and sometimes make my play plans expressly so that I can talk to someone). Can I deduct any part of entry fees or food I purchase while we're there?

    1. Hi Mary! Thanks for the question. I guess my first question to you is whether your blog is making money. And if it's considered a business or hobby.

      Next, do you write a review of those playplaces? Are those visits "research" for your blog? If so, I would think you can deduct a portion of the fees and meals.

      Here are some general guidelines on deducting meal and entertainment expenses (extracted from http://biztaxlaw.about.com/od/taxdeductionsatoz/a/mealentertain.htm)

      •The expenses must be "ordinary and necessary" business expenses

      •The expenses must meet one of two tests:

      •The directly related test applies if you can show that the main purpose of the activity was business. For example, if you are meeting with clients in your office, meal expenses during the meeting would probably meet the "directly related" test.

      •The associated test applies if the expense is associated with (along with, in conjunction with)a "substantial" business discussion. For example, if you had a meeting with clients at a restaurant and then you take the clients to the theater, this might satisfy the "associated" test.

      If you can meet these tests, 50% of meals and entertainment can be deducted.

  8. It can be both though. There are people who create blogs to blog the updates of their business and there are some who just create it for fun, just expressing their feelings through blogging.


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