When I first started blogging, I never thought that it would one day become a “real” business with significant income, significant expenses, and, well, significant taxes. For most bloggers, you’ll be filing as an individual, a sole proprietor, or perhaps an LLC recognizing income on your Schedule C form. While some of you will have reached the point where your blogging business is a full corporation, a lucky few will probably have anyone else on staff to do their taxes for them.
Fortunately, filing your taxes as a blogging business is not much different than filing it as an individual. And, it can be super easy. You take your income, subtract your expenses, and pay taxes on the difference. Unfortunately you will not be able to file a Form 1040EZ or a Form 1040A, it’ll have to be the standard Form 1040 since that’s the only one that supports the Schedule C to report your business income.
Declaring Income
Your income will come one of two ways, each defined by your relationship with the company you are working for. If you are blogging for a company as an employee, your income will appear on a Form W-2. Your employer will withhold the appropriate income taxes (learn more about 2011 tax brackets), you will have already paid FICA, and you won’t be able to deduct any business expenses since this income isn’t considered business income.
If you work for a company as an independent contractor and a company has paid you more than $600, you should have received a Form 1099-MISC. If you earned less than $600, you are still required to declare the income but you may not be receiving a 1099-MISC. As a independent contractor, you will be able to subtract business expenses from this income.
There will be cases in which revenue earned will not be reported to you. A common example is when you sell advertising. Many companies see advertising as a purchase; they are “buying” media from you in the form of banner impressions or banner clicks. You will not receive a 1099-MISC for this revenue, but you are required to claim this income even though there’s no formal reporting of it to the IRS.
Deducting Expenses
Here comes the fun part about owning a profitable business – finding business expenses! Deducting your expenses helps lower the taxes you pay on your business income! The official IRS definition of a business expense is that it must be “both ordinary and necessary.” It’s a very broad definition that has vexed many a business owner. Ordinary means that the expense is “common and accepted in your trade or business.” Necessary means that it is “helpful and appropriate for your trade or business.”
While blogging is fairly new, operating a home office is not and there are a lot of ordinary and necessary expenses associated with running a business from your home:
- Home office: Claiming a home office expense may be a red flag but if you use a room in your house for the exclusive purpose of running your blog, you can claim a home office deduction.
- Internet service, associated utilities: When you claim part of your home as part of your business, you can also claim a percentage of the utilities and services you use as you operate your business. This includes a portion of the Internet service and utility bill. The only exclusion is your first landline telephone, which is always considered personal regardless of how you use it. You can, however, claim a second telephone line as a business deduction.
- Insurance: If you have homeowners or renters insurance, you can claim a portion of these expense if you also claim a home office. If you have independent health insurance, you can claim that as a business expense. If you have health insurance through another employer, you will not be able to claim that. While you’re at it, now’s a good time to shop around for insurance quotes online if you haven’t done so in a year.
- Computer equipment: If you purchased any new computers or computer equipment, such as a printer, paper, or ink; you can also claim these business expenses.
- Subscriptions, dues, memberships: If you pay any subscriptions related to your blog, whether it’s industry magazines or membership dues, you can generally claim these expenses as well. If you pay for a service like Flickr Pro, that’s deductible too.
- Hosting fees, domain registration fees, etc. Any of the costs associated with operating your blog are deductible as well and that includes the fees you pay your hosting company, the cost of registering domains, and the cost of any software packages you may buy (themes, design work, forum software).
After you’ve racked your brain for all the possible business expenses you can deduct as part of operating your business, consider making an employer’s contribution to a retirement account. Contributing to a Simplified Employee Pension IRA, known as a SEP-IRA, is a great way for you to invest in your future while also reducing your business income further. When you’re ready to take that next step, read more about starting a business.