At the Healthy Living Summit, after I gave my talk about making money from blogging — I got a couple of questions that I had to dodge. But I knew I couldn’t outrun them for long!
Instead of trying to fumble through the issue myself, I called in an expert. And I’m so, so thrilled to give you some of the answers we all need to know…myself included.
Holli is the owner of Thrive Consulting (www.thriveconsulting.net, @ThriveConsultKY), has been a practicing accountant for ten years and licensed Certified Public Accountant for nine years, and is pretty much awesome. I gave her some of the questions that I had, and asked her to help clarify the rules of reporting income that comes from blogging and social media.
(BIG NOTE: I, Katy, am not a tax expert, and while Holli is, this is general advice about blogging, taxes and overall IRS tips. Please do not consider any of this as consultation for your individual tax or legal needs. I urge you to consult your own tax expert with further questions. Any advice contained in this post is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this document. Thank you to Tax Girl for pointing my toward that particular disclosure.)
How much does a blogger have to make to require filing it as income with the IRS?
Technically, any income made is required to be reported to the IRS (even money you make from eBay auctions or yard sales!).
Do the rules differ for bloggers who consider blogging their full-time jobs and those who just hobby blog (but make more than, say, $400 a year)?
The IRS is very specific about what is considered a “hobby” versus a “business.” (The rules can be found at http://www.irsvideos.gov/Individual/PayingTaxes/HobbyBusiness but the general issue is whether you are profitable for three out of five years. If so, you are considered a business. If not, it’s a hobby.)
All income is required to be reported, no matter if it’s a hobby or a business. However, a “business” can show a loss (that is, their expenses are greater than their income, therefore reducing your taxable income); a “hobby” can only deduct expenses to the extent of income produced from the hobby. Also, a hobby reports income on the 1040 form itself; a business has to report on schedule C.
When do bloggers have to sign W9 forms with companies? What if that paperwork is not signed — how do bloggers report their income? Once a year, or are they required to file estimated quarterly taxes?
Again, technically, W-9s should be filled out any time a company contracts with an non-employee. In practice, businesses know that they only have to send a 1099 form reporting income if they pay the non-employee more than $600 per calendar year, so many businesses choose not to ask contractors to sign W-9s for small payments. If a blogger doesn’t receive a 1099 from a company, it is their responsibility to keep track of the income they have received and report it for taxes.
In most cases, the annual income tax return is sufficient. You should only have to file estimated quarterly taxes if your annual tax liability (that is, the amount you will owe the IRS at the end of the year) is over $1,000.
What are some legitimate tax write-offs for expenses incurred from blogging?
In any case (whether blogging is a “business” or a “hobby” for you), costs such as domain name registration, blog hosting, software purchases for blogging, and advertising for your blog would be considered legitimate tax write-offs. Purchasing a computer for blogging would only be considered legitimate if blogging is an actual “business” (and in this case, it would have to be a depreciable asset of the business—best to hire an accountant for this one!). Travel to a conference might also be considered a legitimate tax write-off, but again, only if your blog is a business.
Are bloggers automatically considered to be self-employed? What if they have a full-time or other jobs outside of blogging?
This one also goes back to whether the blog qualifies as a business. If it does, the blog has to be reported on a schedule C form, which is sort of like a form for self-employment income/expenses.
What about products bloggers receive for free in order to write a sponsored post (or that they won through a giveaway)? Are the value of these items taxable?
Yes. Again, technically, the value of all of these items should be reported. If it’s one granola bar… the IRS probably isn’t going to care that much. But if it’s a case of granola bars or a year’s supply, then that makes a bigger difference.
The main rule of thumb on blogging (or any other kind of side income) is to keep track of income and expenses. If you log them throughout the year, filing your taxes at the end of the year should be a breeze.
With any of these items (especially if you get into filing a schedule C), hiring a good accountant is a wise investment (and a tax-deductible one!). There are several virtual accountants out there, or you can find someone in your hometown. Whoever it is, make sure they’re a good fit for you and that they understand your business!
Do you have more questions for Holli? Leave a comment and she’ll review them and get you some answers! And if you are in the market for a tax expert, be sure to check out Thrive Consulting.
About Katy
My dad is actually a CPA and we talked about this the other day. He says he has me covered
Matt @ The Athlete’s Plate recently posted..My Favorite Running Songs
Very helpful advice! I always get so confused around tax time, especially since I’ve started pulling in freelance jobs. My dad is very smart about these sorts of things, and he usually takes care of me.
Carly (Swim, Run, Om) recently posted..‘healthy’ fast food?
Great advice. One thing I have been wondering about is the home office…can you deduct a dedicated home office if that is the soul purpose of the room? Hmmm…
Vinobaby (aka Kerry Ann) recently posted..Chasing Skirt
Kerry Ann, if your blog is a business and not a hobby (or if your employer has asked you to set up a home office) and it is the sole purpose of the room or space, then yes, you can deduct some costs related to your home. I would consult IRS publication 587 (which can be found at http://www.irs.gov/pub/irs-pdf/p587.pdf) or an accountant to make sure you get it right. It can be complicated!
Holli @ Thrive Consulting recently posted..Hello world!
Thank you thank you thank you! I need to read this in more detail and then I’m sure I’ll have tons of questions:)
Clare @ Fitting It All In recently posted..WIAW: A Day of Many Plates
Once again, very informative post, Katy! I honestly didn’t know half of this info haha.
Thanks for keeping me & my new bloggie bootay informed
Brittany @ Itty Bits of Balance recently posted..Chia Seed Thick Oats Trick
Holli is da bomb, and has guided me through tax issues as well. She’s my virtual accountant extraordinaire (and a damn good half-marathon training partner)! Highly recommend her.
Emmie recently posted..Weigh In | 9.5.11
Thank you so much for doing a post on this. I’ve often wondered about how much you have to pull home before it’s important to file taxes on it. Seems like in general it’s important to keep records of everything and discuss it with your tax professional.
Alayna @ Thyme Bombe recently posted..Bar Exam: Peanut butter pretzel Clif Mojo bar
What a great post and a very important + confusing topic.
What are your thoughts on writing off food for recipes that are posted on the blog? Also, if i want to file the blog as a business this year, can I only write off things *after* declaring it so? Or can I write off anything from the year? Thank you so much!
Ashley recently posted..why + when I went gluten free
If you file the blog as a business in 2011, you can write off all qualified expenses from 2011, not just when you declare it as a business. As for the food… that’s a tricky one. My gut tells me no, unless you are cooking the food solely for the blog and are not then eating it.
Holli @ Thrive Consulting recently posted..Hello world!
Thanks so much Holli!
thank you THANK YOU. awesome post
janetha recently posted..tutorial tuesday: spaghetti squash.
That $400 figure you listed…is that the tipping point? I am a total hobby blogger and a lazy (er, I mean, busy) one at that, so my income is less than my expenses (as in, I paid more in hosting fees then I’ll make but I look at it as me paying for my hobby) so do I still have to report it? And, if I am reporting it, can I deduct the cost of attending a blog conference (hey, no harm in asking right)?
Hallie recently posted..THE Wedding Recap! Part Three
Hallie, the IRS would say that any income, no matter how small, must be reported. If your blog is truly a “hobby” (that is, it costs more than you make), you can only deduct expenses to the extent you made income. That is, if you made $40, but spent $100, you could only deduct $40 worth of expenses, so it’s a net wash. Travel to conferences would only be covered if your blog was making money and you were considering it a business.
This isn’t applicable to blogging so much…because I am definitely not making moola off of it! Hah. But with being self-employed or freelancing on the side as well – does it really “pay off” more? I get more money each paycheck obviously because taxes aren’t taken out – however I’m SCARED TO DEATH when I have to pay it…it’s going to be a LOT. Do write-offs really help to lower it that much??
Baking N Books recently posted..Just Watch It. TV.
Write-offs definitely help. For example, if you made $1500 freelancing, and you are in the 22% tax bracket, without any write-offs, you will have to pay $330 on that income. If you can deduct $500 worth of expenses, then you only have to pay tax on $1000 of income, which is $220. I mean, it’s not a huge amount, but $110 makes a big difference in my budget!
Holli @ Thrive Consulting recently posted..Hello world!
Thank you so much Holli.
@Baking – I read on another blog earlier in the year that you should just put away 30% of your checks into a separate account and ignore it (if they’re not taking taxes out, that is). Chances are you won’t have to use the whole 30%, especially if you have deductions! That way, you have plenty of cushion and it will be like getting a tax refund since you should have some left over. If you can afford to put the money aside each check for taxes, tax time will be more rewarding for you than scary.
Regina @ The Tampa Bay Saver recently posted..Happy Holidays! See you in a week!
@Baking – I totally agree with Regina. The first year I was freelancing I didn’t put any money aside and ended up having to pay my taxes with VISA. OUCH!! Now, I put 30% away in a savings account that I “can’t touch” and then I make my quarterly payments from that account. It has been smooth sailing ever since and MUCH less stressful.