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. šŸ™
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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{ 24 comments… read them below or add one }

Ling March 26, 2008 at 11:14 pm

I believe its also important to take into account one more issue. What kind of company do you need? A sole proprietorsship is fine for most people, but it does have the possibility, remote though it is, of having to be liable personally if anyone files claim against you. If you register an LLC, that gets you off the hook personally. Has a double taxation problem , though – Meaning you might end up paying taxes for both your business and personal earnings. Best way to do it would be to consult a lawyer at least once before you wade into it.

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Kelvin March 27, 2008 at 3:24 am

I don’t earn any money from blogging but I am a consultant. I file my tax according to when the money is actually received because that’s easier for me to keep track of.

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Nicole Price March 27, 2008 at 4:09 am

hmm good info. Too bad I’m not earning anything from my blog yet. Hope to need to spend hours over my tax planning this time next year.

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????? (Jason) March 27, 2008 at 8:21 am

I’m lucky enough to be a Canadian living in Japan, which means I fall under “Non-Resident Tax Status.” What this means is that, so long as I am not earning a dime from any Canadian sources, I do not have to report my earnings from any blogs. For the moment, all of my revenue has come from American, Japanese and European sources, so I’m quite safe.
That said, I also keep track of my expenses (my own server, which is hosted in America), as well as revenues and their source. If, in the unlikely event that the Canada Customs and Revenue Agency wants to audit my online income, I’ll be fully prepared and ready to hand over the accounts and requisite digital receipts.
It never hurts to be prepared.

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Home Recording Studio March 27, 2008 at 8:52 am

Congratulations. You have an income to pay tax on. I do not have enough to warrant paying income tax yet. But what you say makes sense to be prepared if and when I do start having to pay tax.

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Webmaster Community March 27, 2008 at 11:15 am

I don’t earn to much money from blogging so I’m not making any problems.

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colorado eye surgery March 31, 2008 at 8:23 pm

Thanks that was a great post with a lot of good information. I haven’t had to file yet but I’m hoping this year I’ll have enough that I might have to. Thanks again!

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Luke April 1, 2008 at 5:37 pm

Sounds like some important things to take into account. Don’t want to lose track of your income sources and get audited. The IRS is such a pain-in-the-neck.
Luke’s last blog post..Meditate, You Big Jerk!

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Steve Elliott April 3, 2008 at 2:59 pm

Blimey, it is a whiles since I heard talk of “accruals basis”.
I work for an accountancy firm in the UK and am finding that internet trading is becoming a bigger and bigger issue. Most individuals start earning money from the web as a hobby and there is a grey area over the point at which that turns into a trade (and his then taxable).
I’m sure our Inland Revenue folks will get around to catching up with people sometime soon !

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pauletet April 5, 2008 at 10:26 pm

The biggest mistake that you will do is not to pay your taxes. It can do you more hassles than religiously paying it.

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Steve Elliott April 6, 2008 at 2:10 am

I’d probably say the even bigger mistake is getting caught!

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Living Off Dividends & Passive Income April 6, 2008 at 1:05 pm

I just put my blog income in my C corp and deduct everything!
Living Off Dividends & Passive Income’s last blog post..How I Made $2,667 In Passive Income In March ?08

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derek April 6, 2008 at 1:12 pm

I’m actually in the process of considering that move for myself, as I am working on the company name right now and lining up what I need to do to create the corp so I can evaluate if that makes the most sense for me.

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Steve@Free iPods July 25, 2008 at 2:49 pm

I’ve just had to include my affiliate earnings in a tax return for the first time, it’s kinda hard to pass 40% of your earnings over to the Government (:

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Asia'h Epperson April 7, 2008 at 6:38 pm

Iā€™m currently not earning money from my blog yet. But, will keep in mind your info.
Asia’h Epperson’s last blog post..Asia’h Epperson Loves Nice People

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Lex Harrow@CPE Courses December 3, 2008 at 2:33 pm

Good post – one thing to keep in mind too is that if you are earning a living or significant income as a blogger or with your website, you can probably take some of your related expenses as deductions. If you do plan to take a lot of deductions, it might be wise to retain an accountant or hire one to file your taxes to help shield any liability. Accountants will also know the latest tax codes and allowances for deductions.

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johan@free laptop December 19, 2008 at 10:07 pm

I am just testing out how this keyword luv stuff works. thanks.

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bill@money saving tips February 7, 2009 at 8:52 am

Great article!
I agree that any blogger spending a non-trivial amount of time on their blog should consider incorporation. The limited liability alone makes it a smart move. Would be a shame to have your personal assets at risk because of an unintentional copyright violation, or product review that sets off a company’s legal team.
I suspect the LLC entity, because of the pass-through income treatment and low overhead, is the right choice for most bloggers. Do your homework though!
bills last blog post..Incorporate as an LLC, S-corp, or C-Corp ?

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Derek Clark@Conservative Books February 25, 2009 at 11:20 pm

Thanks for the tips. My blog just started earning a little money so these are things I am gonna have to keep in mind for next year.
Derek Clarks last blog post..Can You Name the Presidents ā€¦ and Vice Presidents?

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Felix@Expense Management July 22, 2009 at 7:06 am

I think everyone should really be very aware about this. Neglecting it will really mean a lot of headache later.

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accountant melbourne February 10, 2011 at 10:30 pm

Its a good idea to keep record of earnings and expenses in a separate copy, in this way we can generally know where money is going and it can be helpful at the time of tax return. Useful information

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Rjan February 26, 2011 at 10:24 am

Blogging in the recent years have given substantial income for the bloggers. There are a lot of methods in which website owners can make a lot of money.
Websites that accept payments from paypal and other services have a very nice detailed CSV type of records for tax and bank auditing later on.

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Zachary March 27, 2011 at 6:30 pm

I made a 1000 dollars with one account, but I dont have a w2 for it.

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Christopher Anderson June 22, 2011 at 4:41 pm

The hardest thing for most business owners is keeping track of their income and expenses. Most people don’t get into blogging for money to do bookkeeping. Yet it is an important aspect of doing any business. The most important thing is to find a system that works for you. Wether that be an excel sheet or a purchased accounting program. Find something that makes sense to you and stick with it. I have been doing taxes for 11 years and the most common mistake I see clients in any industry make is they don’t properly keep track of thier income and expenses. It can cost you thousands of dollars in taxes if you don’t keep track of your expenses. So, I recommend finding a system that works for you and do it.

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