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.