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.