The following post has been submitted by Kelly Phillips Erb from taxgirl. It is based upon US tax laws and may or may not be applicable in different parts of the world.
1. The US Tax Code is based on the idea of ‘worldwide taxation’ which means that, more or less, if you are a US citizen, you are subject to tax on your global income no matter where you are located or no matter the source. So, if you’re a US citizen blogging for, say, a Canadian company, that income is still taxable in the US. And if you’re lucky enough to be a US citizen blogging from some remote garden spot outside of the country, still taxable. Don’t get fooled into believing that you have to live in the US to be subject to US tax.
2. Income is reportable to the IRS no matter what form you receive and what amount you are paid. Forms W-2 are only issued to employees of a company and most bloggers are freelancers, not employees. It’s more likely that you’ll receive a form 1099 but only if your annual income exceeds $600. However, no matter whether you receive a form or not, you must report payments made you as income – even if it’s only pennies for the year.
3. Expenses related to your blogging are deductible so long as they are ‘ordinary and necessary’ and only then to the extent that the expenses are attributable to your blogging. In other words, if you mix business and personal, you must be able to separate out the business use in order to claim a deduction. Examples of potentially deductible expenses for bloggers include internet connections, hosting fees, cell phone connections, back-up tapes and computer software.
4. You can claim a home office deduction for business which means that you can deduct a percentage of utilities, insurance, and even mortgage interest or rent. However, the part of your home or apartment must be used exclusively and regularly for business. Be smart. No matter how much my brother wanted to claim his recliner as his place of business for his NBA reports, it didn’t count. The space must be exclusively workspace and it must be your actual office and not just at your home for convenience.
5. Telling the world about your blogging business is also deductible. Consider the cost of printing business cards and letterheads or advertising your blog when calculating your expenses.
6. If you’re searching for a new gig, that might also be deductible. Job search expenses may be deductible so long as they are in the same line of work as you normally do (you can’t decide to switch from lawyer to blogger and count those expenses) and the gap between your gigs is not substantial. If you qualify, you may be able to deduct expenses related to resumes (including postage), employment agency fees and reasonable travel expenses.
7. Blogging as a business is different from blogging as a hobby. A business is considered a serious pursuit; a hobby is something that you do for fun. If the IRS believes that your blogging is a hobby and not a business, you may only deduct expenses to the amount that you have income. In other words, if your blogging income was $100 for the year, you can only deduct $100 of expenses. If you’re operating as a bona fide business, you can carry forward expenses that are in excess of your income (that’s a good thing). Generally, to be considered a business, you need to hold yourself out as a business and act with the expectation of making a profit (you don’t have to actually make a profit every year, just expect to make a profit).
You can have fun as a blogger and make money, too. Your specific level of interest and time involved in making it a profitable venture will be reflected in your tax reporting. There’s nothing wrong with being a blog hobbyist – it makes the reporting easy. But if you’re planning to blog for a living, then act like it. Be business-like. You’ll impress those in the blogging community and make the IRS happy at the same time.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation. If you have a question, ask the taxgirl.
I’d be interested to hear your opinion of deducting the expenses associated with creating content. For instance, if I blog about a product or service, and need to pay for that product or service in order to review it (unpaid), and am doing so to generate content for my blog, can I deduct it?
I sort of see it like a writer that takes research trips while writing a novel.
This answered my number one question – I can’t deduct any expenses unless I have revenue that I am paying taxes on. I pretty much figured this, but wasn’t 100% sure. Thanks for all of that helpful information. A very interesting post, and something many people should be concerned about.
Tim –
I think so long as your expenses are reasonable, you’ll be fine.
If you’re blogging about books and you buy some books to review, absolutely deductible, assuming that it’s not start-up costs (which can be tricky).
Where you have to be careful are things that can be depreciated or things that can also be used for personal use. It loses its deductibility if isn’t “ordinary and necessary” – buying that Porsche for review? Not so ordinary and necessary.
Foodette –
Take a look at #7. You can deduct excess expenses if you’re claiming that you’re operating as a business and not as a hobby.
I popped over to your site (very nice, btw!). It looks like, from your “about” and your posts, that this would like qualify as a hobby. But some folks – like Darren – are clearly on the business side. It’s a fine line interpretation and not based so much on numbers as other factors like time expended, etc.
Seems like they haven’t yet found a way to tax time (or make time a tax-deductible expense). But heck yeah, deduct it, it’s definitely a business expense.
A lot of people mix pleasure into business on business trips – the only thing you can’t do is write off expenses that are purely pleasure. If you take a business trip to Hawaii, you can deduct the plane ticket, cab fare from the airport, and hotel room, but you can’t deduct the surfboard or helicopter trip to Mauna Loa (unless you are a volcanologist—you get the idea). But you still get to piggyback much of the pleasure costs into business expenses if you are savvy enough.
AWESOME article. Most excellent information!
I’m a ways from monetizing my site, but this answers a lot of questions for someone new to the game. I’ll be interested to see your response to Tim’s question. Thanks for the excellent summary.
I’d like to argue two of the points you’ve made.
#1 While it is true that you need to report your income to the IRS if you live outside of the US, the chances are you will not have to pay them any taxes. Generally if you are already paying another government the US does not require you to pay them as well. Unless you are making a lot more money than I am.
#2 You do not need to report self employed income if it is less than $400. I believe that is the gross income, but it has been a while since my self employed income was that low.
great article with important things to remind bloggers that want to do so as a business.
Seems like they haven’t yet found a way to tax time (or make time a tax-deductible expense). But heck yeah, deduct it, it’s definitely a business expense.
However, you can usually deduct third-party labor charges.. that is, *other people’s time* ;-)
As an attorney and former tax preparer, the tax implications of blogging are pretty interesting to me. I have recently been pondering whether products sent to me by PR agencies are income. I decided that in the absence of any agreements for a review, that they are not and that they are gifts instead. I also have been wondering whether purchases of products for review are deductions even if I use them up personally after I review them. I lean toward yes, as long as I purchased with the intent to review the product and actually did a review. But my confidence there is not quite as high and I have not formally researched the issue yet. (note, the same disclaimer given in the post applies with me as well, I am not giving anyone formal legal advice with my opinions here!)
Not just blogging, it’s the whole question of internet income. I have a very tricky situation – I live and work in one country, am the citizen of another country and do contract work for companies from third countries. The question of who on earth I pay tax to is a tricky one.
My income from internet-based business is not that great at the moment, but if it starts to get more serious (i.e. above the lowest tax-band in my native country) I will probably incorporate all my business into one company and start paying tax locally (as I already do on my regular wage), either that or open that secret off-shore account ;)
This answered my number one question – I can’t deduct any expenses unless I have revenue that I am paying taxes on. I pretty much figured this, but wasn’t 100% sure. Thanks for all of that helpful information. A very interesting post, and something many people should be concerned about
Thanks for these tips. I especially like #7, because even if you’re not making much right now, treat your business like a business anyway. It will help you build up good habits such as record keeping that you will use when you are making the big bucks. :)
Thanks for the tip. I’ve always wondered about taxes. I live in the US and everytime I sign up for some services online, it asks for my Tax ID. I personally don’t like the fact that I have to give away some of my money that I’ve earned even though it’s online.
Online Tips
http://slyvisions.com
Yup theres a lot to worry about when it comes to taxes and blogging. Thanks for the article it definatly will help me out if I ever start making money :)
thanks for pointing out #2. i’ve been thinking a lot about that and I know I have to report all income with or without THE form so this just confirmed it :)
(Dear GodGoddessGodder of blogging:
PLEASE PLEASE PLEASE CAN I HAVE THIS PROBLEM? I have been blogging for some time now and really want to make money as a writer, but I think being a redhead is holding me down. Please allow the fact that I found this great post to BE MY SIGN.)
Seriously, your website has helped me tremendously.
Thank you,
Catherine, the redhead
PS. I’ll take a hundred 1099s for a million, please.
Unfortunately, as a US citizen, you are considered “property of the state” just as in ancient Rome. Hence even if you flee, the US considers every penny you make as taxable — even if you renounce citizenship.
Every other country disagrees, except for the Philippines and Eritrea, two lovely, yet third world, countries.
Oh, I live in the US and don’t plan on leaving — I’m just complaining! And for those in the US with significant non-US income, hey, it’s only money. It’s not worth going to jail over.
I believe South Africa actually used to execute resident citizens found to have offshore bank accounts (or at least I’m told the law was on the books). The US is somewhat more civilized :)
Excellent post Kelly, and thanks for devoting the space to it, Darren. I’m a US citizen residing outside the US and due to the nature of some of my blogging and other on-line activities I get a _lot_ of questions regarding US and host country tax issues.
It may not be palatable but the laws are the laws and it is excellent advice to know them, so at least when you make a personal decision you know where you stand. A great many folks are in the same boat as “Ed” who wants to argue … but unfortunately arguments are only useful if you start from a factual basis instead of making up the rules to suit yourself.. Yes when living outside the US you may indeed have to pay tax to another country … but if you do that doesn’t eliminate your US requirement to report … you may get credit against yu US tax liability for foreign taxes or you may not … but it’s not the taxpayer’s decison, it is the IRS’s decision. If I had a dollar fo every fellow US citizen I have run into who live outside the US thinking they would escape their US tax liability, I’d have lot of income to report *smile*.
Good information here, I hope a few folks actually read it for understanding and structure their blogging hobby or business accordingly.
Hi,
I am not a US citizen and I blog from outside of the US. However,
I participate in money making programs (Adsense, review me, etc..) that I assume are made by US companies. Should I pay taxes in the US?
Thanks!
Vito
Thanks for the wonderful article. I was confused if I had to pay taxes or not here in Australia.
Now I just need to figure out where to get the paperwork for filing next year…
I was just discussing this very topic with a co-worker yesterday. This clears up some questions. Thanks.
I never really thought about blogging income like that… great piece!
Hi Darren, thanks for this post, one of the best I’ve seen. As a fellow Aussie, can I ask how much of this article applies to Australia?
Ed –
I agree with you that you may not be required to pay tax on money earned outside of the US but that doesn’t obviate the need to file.
As to the SE part of your statement, you’re absolutely correct if it’s business income. That’s where it makes a difference as to hobby versus business. While not always true, it’s less likely that you’re running a “business” as compared to a “hobby” if your annual income totals less than $400. You would report hobby income less than $400 – you’ll see where to do it in the instructions on your 1040.
Thanks for the information. It was very useful.
Ted and others –
If you’re subject to US tax and living outside of the US, chances are that you’ll never actually pay US tax but you will likely have to file. I would recommend checking with a tax practitioner if you’re not sure.
Most countries (well, the ones that we like anyway – if you’re in a country that we’re annoyed with, you’re probably out of luck) have agreements with the US either by treaty or by rule that allow you to exempt out of paying (but not filing) the tax if you’re paying tax in your country of residence.
Since there’s so much interest in this topic, I’m going to do a follow-up post on http://www.taxgirl.com – and I’ll talk to Darren about possibly linking it.
I would like to see this article flipped on its head and applied to British/UK legislation
This is a little off topic, does anyone know anything about how eBay works for taxes? Is it still a $600 limit? Can I deduct listing fees?
Thanks taxgirl!
Tax time can seem so overwhelming. You described it quickly and easily. Hopefully it will be that easy when it is time to do the paperwork!
Great Tips Kelly.
Good news for the citizens of other countries :D as some countries waive the tax liability if you are working outside the country.
Is somebody able to tell us what percentage take the rate of taxes compared with the total revenues by blogging after the deductions? I know that is different from a country to other, but I am just curious because in my country (Colombia) it is really high: 35%!!
Great advice. Thanks :)
I’ve been researching this a lot lately as I’ve just fired up two blogs as spinoffs from my personal multi-category blog. These blogs are specifically designed to make money.
Here is my current understanding of hobby vs. business as the IRS sees it. If you give the appearance of intending to profit (marketing, etc.) you can deduct to your heart’s content. The IRS generally expects you to make profit in three out of five years, though, but taking awhile to get in the black is understood. IF, however, this intention to profit is not clear then you do indeed get stuck with the label of ‘hobbyist’ and can’t deduct more than you make.
So get serious, make some money and deduct away. I know I am.
I also found some very interesting articles regarding product reviews. If you can show that reviewing products is part of your business then you can deduct a lot of purchases. If you then sell the product you subtract the income received, if you keep it you might need to subtract the ‘fair market value’ although some think this is optional.
P.S. The last I heard you owe U.S. taxes as long as your income comes from a U.S. company. So an overseas worker still pays U.S. taxes. BUT – if you live overseas and are being paid by a foreign company, you don’t pay taxes on the first $70,000, and neither does your spouse. The internet certainly muddles the water since it isn’t always clear where the income is sourced, but that’s what I recall from back when I was thinking I would retire in Belize. LOL
Thanks for the post. It’s a topic most of us are not experts in.
Thanks taxgirl! Those are wonderful tips and advice!
Steven –
If more of you were experts, I’d be out of a job! ;)
very useful post, thanks!
@Ed – where did you get the magic $400 for the amount of income before you need to report? Didn’t see that anywhere in Taxblock when I filed this (and last year).
I reported my income last year on my tax return for the amount that was paid to me by google for adsense. It wasn’t a lot of money –
Well I’ve just been to Google’s Adsense tax site and here is an excerpt:
There is also some bad news. You may be subject to self-employment tax, if you made more than $400 your 1099-MISC. The current focus is on individuals, and not corporations or LLCs. Information for other business types and countries may be added later.
Now I just have to find out what the self-employment tax is?
Rose –
Self-employment tax is the independent contractor’s version of FICA, meaning Social Security and Medicare withholding.
The bad news is, unlike work for an employer, you don’t split the tax between the employer and employee. Since you work for yourself, you’re both.
The good news is, since you have to pay both sides of the tax, you get a tax credit for doing so.
How about donation income? I don’t think that is taxable because it is considered a gift from one party to another right? Each person can give a gift of $11,000 or so to another person per year without paying gift taxes.
Dear “thebaglady”
Donation income is generally not subject to income tax because it is not income that is of a personal exertion nature or is from carrying on of a business.
Been looking around for these informations, Thank’s a lot!
I am still confused though, I thought I could just treat the income I earned from blogging thru (PPP, etc.) as self-employed income and I don’t have to bother or worry reporting it since I only got below $400.
Which is which, treat it as self-employed income or HOBBY income? Enlighten me with this please…. THANKS!
The blog seems to be very useful for me since I really got stuck with my tax payment issues. I came to know about a company who is providing consultancy for tax-related problems. They are providing services for tax penalities, wage garnishment etc. the website link is http://strategictaxresoluti…. Could you please let me know about this company. Whether they are providing the actual consultancy service?