Congratulations on your new business! Wait? What? That's right. Your business. Are you a blogger who sells ad space? Do you model c/o clothes? Well, then, you have a business. Business income and any related expenses are required to be reported to the IRS and your state and local taxing authorities.
Well, I only made like $1,000 last year selling ad space and I didn't receive any 1099s so I'm all set.
Actually, you are required to report all income on your tax return regardless of the amount or the receipt of a Form 1099. It doesn't matter if you made $50, $5,000 or $50,000. It's income and it's reportable.
I find that it is often assumed that if one earns less than $600 and does not receive a Form 1099, the income is not taxable. This is not correct. The $600 mark is related to the filing requirements of Form 1099, not of reportable income. Tax rules and regulations can be extremely complex and if you should have any questions regarding your personal tax situation or whether or not you have income, you should consult a tax advisor.
[It should not be assumed, however, that cash money equals income. For example, if you resell some of your kid's too small clothes, that most likely would not be considered income. The loss on the sale of personal items is not reported on your tax return. That dress from Gymboree cost $30 and you just sold it for $10. And, no, don't think about starting up a company for loss purposes. Hobby loss rules will take care of that idea.]
But those clothing companies sent me those dresses for free so I don't really have income from that. They didn't pay me anything.
But they did. Bartering is the exchange of goods or services without exchanging money. And it's taxable. If a company sends you an item to keep in return for your review of that item on your blog, you, in effect, sold ad space. The fair market value of those "freebies" is taxable income to you.
I just bought a new laptop and a camera to use for blogging so I can write off those items.
I always laugh at the term "write-off" because it reminds me of a Seinfeld episode. Equipment such as computers and cameras are not expensed or "written off." They are depreciated over their useful life, which is determined by the IRS. Computer equipment is depreciated over five years, for example. The resulting depreciation expense is a deduction.
Do you ever use your laptop for personal use? Do you pay bills while using it? Shop? Email friends and family? Play around on Pinterest? Well, then you cannot depreciate the entire cost of that item because it is not used 100% for business.
Fees and expenses that are 100% related to blogging, such as domain fees, fees paid for website design or advertising expenses that you pay, should be deductible. You may want to think twice before claiming that 100% of your internet fees paid to Verizon are a business expense. Or that your dinner at a fancy restaurant was a blog expense because you blogged about it.
[This post was written to make you think.]
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Disclaimer - The above discussion should not be taken as tax advice. Please consult a tax advisor regarding your personal tax situation if you should have any questions or concerns.
10 comments:
I hadn't really thought about it that way. Thanks!
Great post! I'll admit, I know very little about taxes. Granted, we just blog for the fun of it, but I'm assuming very few bloggers report the income they receive appropriately.
Good thing I don't put ads on my blog, I would NOT know what to do! This helps though, definitely makes me think about other blogs I read that do generate a stream of income! :)
I think It'd be interesting to see if the IRS ever audits a blog. As of right now, I doubt it'd happen, but who knows??
xo,
A
Wow, who would have thought, thanks for the heads up!
http://hopefullittleone.blogspot.com/
Ahh... the questions I am asked on a daily basis. Just usually not about blogging but it is interesting to think how it transfers over. Luckily I only have like 20 readers so no one pays me to advertise on my blog. LOL...
I can be a tax geek sometimes so I find this interesting. I'm sure there are some bloggers who have no idea but this is really a business - mostly for the BIG bloggers. I suppose if you are audited by the IRS and you have reported or deducted anything related to a blog, you are open.
I have to object in your use of the term barter as it pertains to the IRS and taxes. The IRS classifies barter as the exchange of goods or services where both parties claim those goods or services as being exchanged. If only one party claims, then what?
If I receive products for review but the company never claim them to the IRS as a barter, I have never heard of a company claiming anything to the IRS for product samples. I have worked with quite a few and they all say the same thing, marketing expenses are just that, product samples and even shipping for them is included as marketing expenses and never claimed to individuals.
Why in the world would a company bother to claim each and every product sample they give out on an individual basis?
Anon - My post and related commentary was based upon tax research. If you search the internet, you will see that similar articles have been written regarding this issue. I'm not quite following your comment. I wasn't referring to product samples worth a few dollars. And how does a company "claim" something they give out? Are you referring to 1099 reporting?
Actually I just looked up something very interesting from an article at Forbes, if you earn less than $200,000 and do not file a schedule C or E, loss or profit from business and supplemental income or loss forms, you have a .4 percent chance of being audited. If you do file a C or E, you have a 1.2 percent chance if you filed for less than $25,000 in profits form your business. Those odds are based on total numbers of audits and tax returns filed for 2012 and does not take into consideration things like obvious returns that are going to be audited because of glaring differences or errors.
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