March 23, 2012

Tax Deduction Tips For Bloggers

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Today I welcome Holli from Thrive Consulting as a guest author. She is a CPA and offers tax assistance to a variety of online professionals. I met her at BlissDom and thought she could provide you with helpful information to finish off your taxes or evaluate how you will track things for next year.

IRS 1040 Tax Forms

One of the most common questions I get from bloggers is “What can I deduct for blogging?” I wish there was a very simple answer (although if there were, I might be out of business); unfortunately, like most IRS regulations, it’s not quite so easy. The best place to start when determining what expenses can be deducted is to determine whether your blog is a business or a hobby.

In the eyes of the IRS, blogging would be considered a business if you reasonably expect to earn a taxable profit. In layman’s terms, this means that you are actively pursuing a profit from blogging and expect to earn one—maybe not this year, but in the future and going forward. The key here is your expectation. A hobby can also earn a profit, but if you don’t expect to earn a profit, then it’s still considered a hobby. (One important note: regardless of whether your blog is a business or a hobby, all income or compensation, cash or non-cash, is still required to be reported on your annual tax returns.)

If you have to report all income, regardless, then why does it matter whether your blog is a business or a hobby? It matters because of what you can deduct, expense-wise. If you are operating as a business, you would file a Schedule C for your business. The Schedule C would include your income and compensation, and all expenses. If your expenses are more than your income, that’s no big deal—you’ll claim a business loss for that particular year. Again, as long as you’re expecting to earn a profit going forward, this isn’t an issue. (However, if you continually show a loss, the IRS is going to grow a little curious. The general rule of thumb is that a business should be profitable three of five years, although this is not a hard and fast rule. There is a great article at the IRS website that can help.)

If your blog is a hobby, you would report any income and compensation as other income on your form 1040. Expenses can only be claimed to the extent of income earned in the year. This means that the best you can hope for is a net $0 tax liability for your hobby. The other important note about hobby expenses is that they are only deductible if you are already claiming itemized deductions via Schedule A. If you’re using the standard deduction, you can’t claim any hobby expenses.

If you need professional assistance determining whether your blog is a business or a hobby, don’t hesitate to contact a qualified accountant or tax attorney. The cost of a consultation will certainly offset any back taxes or penalties you might incur for making the wrong decision!

Holli at Thrive ConsultingHi, I’m Holli. I’ve been a CPA for 11 years, and currently provide bookkeeping, tax, and financial consulting services to individuals, entrepreneurs, and small businesses across the country. My clients are bloggers, authors, photographers, marketing specialists, and consultants. If doing what you love (and what makes you money) is getting displaced by handling the finances of your business, get in touch with me! I can be found at www.thriveconsulting.net, on Twitter at @ThriveConsultKY, and on Facebook at www.facebook.com/ThriveConsultKY.

 

Disclaimer: This post is intended to be for general informational purposes about blogging, taxes, and overall IRS tips. Please do not consider any of this consultation for your individual tax or legal needs. I urge you to consult your own tax expert with further questions. Any information 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.

Image Credit: Arvind Balaraman at FreeDigitalPhotos.net

Sara

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