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Taxes for Bloggers

This is tax weekend for us. I spent the two days gathering up and cleaning up the information we’ll need before we file. Here are some things that bloggers (or other freelancers) should be sure to get lined-up before doing taxes: (please note, this is not professional tax advice, just my thoughts from my experience)

1. W-2s and 1099s

Besides the W-2 forms we got from employers, I received a number of 1099 forms from advertisers such as BlogHer, Linkworth, etc. As a rule, I believe you have to earn more than $600 from a company before they need to send you a 1099 form.

2. Bank and Investing Statements

Banks also send 1099 forms letting you know how much interest you’ve earned in the last year. One thing to note if you’ve been using ING Direct’s own referral links (vs. using the ones you can get through programs like Commission Junction), that’ll show up on the 1099 form you get from them. So if you’ve also noted it down in your blog earning spreadsheet (see below), then you’ll want to remove that line.

(Edit: The following two sections have been modified, thanks to some commenters and some of my own experiences filing.)

3. Your Blog Earnings Spreadsheet

Want a free copy of the blog/freelance earnings spreadsheets I use? You can download: [download#3#nohits] [download#5#nohits] [download#4#nohits].

Hopefully you already tracked your blog earnings from ads, affiliates, and the like. I spent some time looking over my spreadsheet this week, making everything look a neat and making sure it all added up correctly at the end. Because I had to add up blogging income and freelancing income, I added a third sheet to the spreadsheet I use (the combo one) where I added together each month’s blogging and consulting income, tallying them at the bottom.

I also added in all income pre-paid toward 2009. I know that’s annoying, but unless you’re keeping the money somewhere like PayPal where you can’t access it (without their debit card, and even then you might just want to report it anyway) you have to report what you received in 2008 that was meant for adspace or prepaid services in 2009. If you’re keeping all the money in PayPal and withdrawing each month’s “real” blog earnings…I don’t think that’s a great plan for other reasons, but you can ask a tax professional as to whether or not you’d need to pay taxes on that yet. I don’t like taking chances.

The Money You’ve Earned from PayPal

Most of us get paid primarily through PayPal, and for most of us, PayPal takes a percentage of all the money we receive. It’s important to keep track of this so you don’t end up reporting more income than you got. There are two ways to do this. One is just to write down the amount actually received when recording PayPal transactions in your spreadsheet.

But if you get a 1099 from someone who paid you through PayPal, it’ll show the amount sent to PayPal. In that case, you have to make sure you add up the PayPal fees for those transactions and enter them into the appropriate section of your return (see Business Expenses, Fees below).

The other method is to record for every transaction the amount paid, the fee, and the amount received. You’d then enter the paid amount into your earnings and the fees into your Business Expenses, Fees section. The earnings represented on 1099s would be entered separately, but the fees would all be entered together. Either way, your tax return should end up balancing out the same.

The second option is the technically correct one, so while it’s more work I recommend taking it.

If you didn’t track your blog earnings, don’t despair. It’s going to be annoying, but you can get your PayPal transactions from the last year, copy them into a spreadsheet, and sort through them. Going through the hassle is much better than being audited, especially if you’re audited and don’t have the spreadsheet.

4. Your Deductions

This is the part that I’m most nervous to write about for fear of getting something wrong. Let’s just say that you want to have the deductions on hand, because even if you’re not declaring a home office you can still use some. And I’m going to talk about what I did.

Returns and Allowances

According to the copy of TaxCut that I ended up using (after talking to some other sole proprietors and a friend who’s a financial adviser), this includes:

  • Refunds to customers
  • Discounts to customers
  • Rebates to customers

How does this apply to bloggers? In private ad sales, I have certain discount policies based on the length of time people buy adspace for and the number of ads they’re buying. Fortunately, I have a consistent policy. So I articulated it in part of my spreadsheet and then went through looking at every ad over the last year that had qualified. I found quite a number.

And for freelancers, if you give discounts to customers based on buying package deals, etc, make sure you write those down. I found several places where I’d done that, or thrown in something as a freebie. I carefully recorded it next to the job in my spreadsheet, including the exact nature of the discount and the cost to me. I was careful to be precise and only to claim discounts given when I’d actually given them, because I want to be able to defend each one if asked.

Business Expenses, Fees

I chose not to claim a home office, because it would be too much of a headache with little that I’d feel comfortable claiming and greater risk of auditing. However, I was able to take deductions for straight-out business expenses and fees.

Things bloggers can claim as business expenses may include computers bought for blogging (though perhaps only part, if you use it for other things too), premium themes, webhosting, domain name costs, anything that you wouldn’t have to have bought if you weren’t running this little blogging business, as long as you use it almost exclusively for said blogging business.

I deducted things that I have receipts for, namely domain name costs and hosting costs. I have invoices to back them up and I was careful to subtract the cost of a few domains bought for private use from the cost on the invoice.

I’m not an expert on deductions, so if you’re trying to figure out whether or not to deduct something, ask a professional or a professional source. Make sure you can defend what you deduct–if you don’t have receipts of some sort, you probably shouldn’t claim it. Fortunately, most big things like webhosting, themes, will send you invoices and/or receipts which you can save to your computer and possibly print. Keep these around.

If you’re interested in organizing your deductions, check out my handy [download#6#nohits]. It’s just a potential deduction spreadsheet, so it won’t tell you what you can or can’t deduct, but it’ll help you keep those deductions in a row (too far a pun stretch?)

So as of this updated rewrite, my taxes are filed. It wasn’t that hard, using software and having my forms and spreadsheets. Once you’ve started them, don’t be afraid to take time out if you think you see something else you can deduct. I saved my work and took a few breaks to calculate things I’d forgotten about (like discounts) and it was well-worth it.

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her every cent counts March 7, 2009 at 4:57 pm

Thanks for this great post. I don’t make anywhere near enough in ads yet to get a 1099 for my income from it, but this is good to know if I ever do…

Thursday Bram March 7, 2009 at 8:03 pm

The way that I understand PayPal’s fees is a little different from what you stated: Because my 1099s reflect the full amount my writing clients pay (rather than the amount less PayPal’s fees), I report the full amount.

But because PayPal’s fees are a cost of doing business, you can deduct them as a business expense.

mrsmicah March 7, 2009 at 8:16 pm

@Thursday, good point, I should clarify the article. None of my 1099 form people paid me via PayPal, they used direct deposit or checks.

Milehimama March 7, 2009 at 9:53 pm

Thanks for the information, and you spreadsheets that you make available to us.

I had the worst time trying to figure out WHAT and HOW MUCH I could deduct. I work from home blogging and writing about TV shows. It is difficult, because I use our internet for homeschooling, blogging, writing, and everything else. Truthfully, I would give up TV and radio before I gave up the Net.

I HAVE to have certain cable channels (Bravo and TLC) for my work; I HAVE to sign up for a certain kind of package to get those channels. So I have to pay for the Golf Channel in order to GET Bravo for work, even though I don’t use Golf channel for work… how much would I love a la carte pricing???!!!

We have cable – and a few times through the year we have talked about getting rid of it (but I do make some extra $ with it…) So, we do watch TV for “not business”, but only because it’s there due to my writing work. From what I read, I could deduct it all but I just took half the cable. I did write off all of the DVR fees because there’s no way I’d pay for that if I didn’t have to! LOL!

I’m just frustrated at the tax code – I did ask two accountants and THEY could only give me their “best guess” as well!

I do keep all of the stubs of my checks (I worked for several places, plus ad revenue, that paid by check but DIDN’T 1099 me) and also note on the deposit slip that it’s blog income. My bank sends me a sheet with pics of my checks and deposit slips, so I can double check my stubs/records against the bank record.

Scott @ The Passive Dad March 8, 2009 at 3:48 am

This is a wonderful resource for bloggers. I’m printing it out now so I can reference it throughout the year.

mrsmicah March 8, 2009 at 11:27 am

@Thursday, I clarified the article a bit on that point. Thanks for bringing it up.

@Milehimama, I understand where you’re coming from. For instance, I bought a netbook this year so I could get more done on my breaks, while commuting (train) and while traveling. I thought about calling it an expense, but I also use it for personal stuff. Ended up not deducting at all. It makes sense to take off half the cable.

Sounds like you’ve done a great job of making sure you’ve got records. I think that’s what matters most…because if you do get audited and have records, then you can approach it more in a light of “ok, how can we work this out” instead of being scared because you have nothing to back yourself up with.

@Scott, thanks! 🙂 I’ve e-mailed you to let you know about the newer version.

Dawn/FFL March 8, 2009 at 1:40 pm

Thanks for the info, I haven’t finished my tax return yet so I will adjust the paypal fees and the domain cost as well, not much, but when you owe, it helps.

Mrs. Accountability March 8, 2009 at 6:46 pm

I never thought I’d hear myself say this, but thank goodness I didn’t make enough at blogging to actually claim it with our taxes. I am already knee deep trying to get everything in order for my husband’s two businesses, plus my side business, and then there are personal income taxes. This is a great post though, and will definitely come in handy for future reference. Thanks!

ZemoG March 9, 2009 at 9:26 am

You Got to report every income on 1099 or no 1099. The $50 they paid you from pay pal is $50 income. Then you can claim the $2 fee as expenses.

mrsmicah March 9, 2009 at 10:24 am

@Zemo, I would argue that you never received that money. It’s not like PayPal gives you all the money you’re sent and then charges you a fee at the end of the month.

Either way, the earnings come out to the same amount in the all-important final box. If one is very concerned about auditing and doing things perfectly, then that might feel like the safer route. However as I have records that show exactly what I was sent, what I received, and what PayPal took, I’m comfortable with my decision.

Thanks for sharing your POV. 🙂

Curt March 13, 2009 at 3:35 pm

Interesting article. You should also consider creating an LLC or S-Corp for your blogging business.

Andy March 27, 2009 at 3:54 pm

Great info. I actually formed my S-corp recently after meeting with my accountant. No more self-employment taxes. Also, I just pay her $50 a month to tax care of all my taxes! Simpler.

living off dividends & passive income September 13, 2009 at 1:27 am

you need to incorporate your business – you might spend a bit of money upfront, but you’ll save money in the long run.
.-= living off dividends & passive income´s last blog ..Guess Who’s Betting On Inflation! =-.

Rachel January 7, 2010 at 2:37 pm

This is great help to new bloggers, thanks so much! I’ll be linking to this.

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