Pay Attention To Tax Implications When Blogging For Money

by derek on March 26, 2008 · 26 comments

As I mentioned the other day, when you are blogging for money it is important to always be experimenting with new ways to monetize your blog.

However, one thing to keep in mind while experimenting is what that will mean for you when it comes time to file your income taxes.

The deadline for filing income taxes here in the United States is quickly approaching and just like last year, I am coming up with a revised version of my post on how to procrastinate filing your income taxes.

Part of the reason that I have been delaying my taxes this year is because this is the first time that the blogs have really created an income. While I have done side work before, I’ve always done enough to receive a 1099 and it has usually been with one or two sources as opposed to the numerous sources with the blogs.

This past weekend I sat down to review my spreadsheet that I use to track the income from my blogs, as well as any related expenses.

When I began tracking my income with the spreadsheet, I was recording the money in the month that it was earned rather than the month that it was paid. For those that are familiar with the tax code and accounting principles, I was recording my income on an accrual basis while my taxes are actually filed on a cash basis.

The primary difference between the accrual basis and cash basis is that with the accrual basis you recognize income and expenses at the time they are earned or paid, regardless of when you actually receive the income or pay the expense.

With the cash basis, you recognize the income once you have physically received the money and expenses are recognized at the time you have paid for the goods or service.

Think of the cash basis accounting method as a check register – you record earnings and expenses as they impact your bottom line. For many small businesses or self-employed individuals earning side income, the cash basis method is used when filing taxes as it is a much more simplistic model.

Initially, I was looking at all of the income that I “earned” in 2007 as what would need to be reported on my taxes. However, due to payout restrictions and timing, some of that money was not received until 2008 and thus will need to be reported next year.

As you begin to ramp up your own efforts to blog for money, be sure that you are keeping very detailed records of all income and expenses to ease the burden on yourself come tax time. Unless you earn over $600 from a given source – I believe that is the limit – they do not have to send you a 1099 reporting your income. That doesn’t mean you don’t have to report it on your tax return though, as the numbers were most likely still reported to the IRS.

With the preparation of my own taxes, which I will hopefully complete this coming weekend, I have been giving serious consideration to the idea of creating a central corporation that will encompass all of my blogs – my first name of 210 Media is already taken. 🙁

With the income continuing to increase from month to month, it is important to treat the blogs as a business and ensure that the most appropriate steps are taken from a tax perspective.

How have you handled the income earned from your blogs?

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