Blog Earnings and Income Tax Deductions

Tax season is upon us and I’ve been getting a few emails asking how I handle the income I make from the blog. The main question seems to be is the income taxable? The short answer is yes. Both the US and Canada taxes its citizens based on their world wide income. What that means is it doesn’t matter where you earn the money, the IRS and CRA wants their cut. For tax purposes, income from blogging is treated as business income. If your blog isn’t incorporated, the income is added to your personal income and taxed at your marginal rate.

Because the blog is treated like a business, you can deduct from the blog income many business related expenses that are required to run the blog. Stuff like web hosting, design work, programming, cost of domain renewal are all deductible. There are many other deductions you can take to bring your income down. There are no set rules. The tax man’s only rule is the expense must be reasonable and used for the purpose of getting business.

The keyword here is reasonable. It’s an undefined term. What maybe reasonable to me maybe completely unreasonable to Uncle Sam. My rule when dealing with deductions is to claim everything because the worst thing that can happen is the deduction is disallowed. If they disallow it, then fine. However, if they accept it, then I’ve saved yourself some money. Here are some of the more creative deductions one can use when trying to reduce blog income taxes.

Why I Blog About My Dinner

Writing about what I eat affects more than my readers’ tummies. By blogging about my dinner, the entire night out becomes deductible for income tax purposes. This is an even better deal than taking a client out for dinner. In Canada, the CRA allows only 50% of the bill to be deductible.

One of the features of this blog is its fine dining section which reviews restaurants. In order to review these restaurants, I have to dine there as part of the research. This research is a business expense and is 100% deductible.

Traveling Around The World for Fun and Profit

Want the government to subsidize your vacation? Start a travel blog and start packing. That is exactly what Grace Cheng did with Worldiki. Grace and her husband are now traveling the world and blogging about the experience with the help of the tax man.

Whenever I travel, I always try to see if there are any trade events going on during that time. By covering the event, I can deduct the cost of the trip. Sarah and I want to go to Dubai next year and it just so happens that the CES has a show in Dubai in May. Guess what month we’ll be in Dubai?

This is one of the reasons why some business seminars are held in sunny locals like the Bahamas. The seminar would be a deductible expense for the attendees. If you’ve ever been to these types of seminars then you’ll know there are a lot of free time in between the sessions so you can network or, more likely, relax in the sun. For people who like to cruise, you’ll be happy to know there are a bunch of seminars aboard cruise ships as well.

Why Zac Johnson Drives a Hummer

There is/was a loophole in the US tax laws (I’m sure it’s been corrected by now) concerning the use of cars for business. To prevent people from buying a Ferrari and witting it off, the IRS placed a limit on how much you can capitalize a passenger car for. This limit doesn’t apply to commercial vehicles like 18 wheelers, bulldozers, buses, etc. The IRS uses gross vehicle weight to determine whether a vehicle is a passenger car or a commercial vehicle.

The loophole came when passenger SUVs got bigger and heavier. Some got so heavy that they qualified as commercial vehicles under the tax code and therefore not subjected to the cap limit. Suddenly, every doctor, Lawyer and Super Affiliate was driving a Hummer or Escalade.

Zac actually didn’t buy a Hummer for tax reasons. He just likes the monster SUV and doesn’t write it off as a business expense.

In The End, You Have To Make Money

While all these creative deductions are very nice, you must remember that you’re in the business to make money. A blog is not a tax shelter. The tax man will disallow any and all deductions if he thinks you’re never going to turn a profit.

Running a blog has many tax advantages. However, those advantages don’t mean dick if the blog doesn’t make money. Even though you can write off that trip to the Affiliate Summit, you still have to pay for it first. Not an easy thing to do when the blog is making zero.


75 thoughts on “Blog Earnings and Income Tax Deductions”

  1. Xacur says:

    I live in Mexico and advertising programs never ask me for a Tax number or anything because I’m not American, I don’t even know how to pay taxes, for the money I make.
    It’ more like a hobby that makes money than a job.

    1. John Chow says:

      The US ad networks only ask if you live in the US. However, this doesn’t mean you don’t have to report your blog income to the Mexican government. If you don’t know how to pay taxes on the Internet income, then go see an accountant.

      1. Eastwood says:

        This is a very interesting post, John. Thanks for the update. This article has shed a new light for me. I’m gonna look into taxes

      2. Xacur says:

        I have not had the chance to take it seriously, but I’m starting to think of doing. I have spent so much time in this lately, I think it’s worth to.

      3. Automolove says:

        I too live outside the US, but am very aware that if my blog starts generating revenue at some point in the future, the tax man will come spank me if he isn’t notified of the income.

        While it perhaps should go without saying, one important point to keep in mind when advertising/affiliate revenue begins to stream in to one’s account is that one will be paying some of that revenue to the tax man in the future, so don’t go spending it all. It sounds like a given, but it’s really easy, if a few hundred or even a few thousand dollars comes along, to spend it all without thinking about the taxes that will be due in x months. A bummer if you’re “suddenly” low on cash then.

        When it comes to less creative expenses, I’d imagine the equipment used for blogging is generally tax deductible as well. Such as the office desktop, the laptop (for all those events), printer etc., not to mention a proper digital SLR camera for product (or fine dining) reviews and so on.

        In my case, though, my blog is in its infancy, so for now the tax man will have to mutter under his breath – he won’t get a penny extra from me! πŸ˜€ … 😯 … πŸ˜₯

      4. HostingCow says:

        I`m from Croatia and just like other non U.S. citizens my tax information isn`t necessary.. Tax should be payed for blogging income, but what if you can`t afford yourself to pay tax 😈 if you know what I mean!

  2. Nice article John, ironic that I, too, wrote an article about income tax write-offs just yesterday on my blog. Looks like it IS that time of the year again!

    1. Upps already arrived the first slap? LoL

      Anyway yours are really smart and valid ways. Wish Italy would accept all those options to detract expenses for taxes (I could of review all types of Gin and Beers heh) πŸ˜›

  3. kpriss says:

    Yeah right, we all love this kind of hobby πŸ™‚

  4. Cameron says:

    So John, how much exactly did you deduct from your taxes from your dining bills? And how much Alcohol was on the tab? πŸ˜† πŸ˜†

  5. Simon Lau says:

    Great article John! It’s given me insight on some of the things I can do for this years income tax. Do you use tax software and do the tax filing yourself or higher a professional?

  6. Zac Johnson says:

    Maybe I’m foolish for doing so, but I paid for the Hummer in my own personal cash. Since I work from home I could not exactly justify writing off a Hummer as I have no where to drive. I pay a massive amount of taxes, just because I do everything so legitimately and by the book. The Hummer is no way associate to my business, just paid off by my personal success. Sure, it would have been nice to write off $70,000… but doing the right thing sometimes has consequences.

    1. Shaun Carter says:

      I agree with you that the government may frown upon writing off a vehicle for business use if you work from home. Things like that are bound to catch up with you sooner or later, and when it does they will assess penalties and interest.

      But a good accountant is worth his or her weight in gold for the amount of money they can save a business owner. Then again, with gold close to $1,000 an ounce maybe that saying will change… lol.

  7. Keep up the meal research. I’ll go reasearch a Hummer.

  8. Buy Website says:

    I never thought about the dinner deduction. Now I have to go through my posts to see when/where I blogged about eating out last year.

    Michael

  9. Wish John Chow and all the readers:

    GONοΌ§ XI FA CHAI
    ζ­ε–œε‘θ΄’!

  10. John, even though you write about fine dining, are you sure that you can claim 100% of the meal?

    1. John Chow says:

      My accountant says yes. However, the thing you have to remember in tax is nothing is written in stone. Remember the keyword – reasonable. Is it reasonable for a blog that makes over $300K a year and reviews restaurant to write off $15K for restaurant research? I believe so. However, if the blog was making $1,000 then saying the $15K dinner bills are reasonable is going to be a hard sell.

      1. I love my accountant. He has the scoop on everything and knows exactly what we can and can’t do.

  11. Katie says:

    John thanks for letting us know that important information about blogging and taxes. I didn’t know that information before. But now I do. Thank you again πŸ™‚ Your the best!

    ~Katie πŸ˜€

  12. Why is it that with something everyone has to do every year, taxes I mean, and most of us don’t get how it works? Myself included. And it feels like waking up in the Matrix once you read through just one tax how to book.

    Why don’t they teach children this in school or are they purposely keeping us ignorant.

    Just enough wages to pay for food, shelter, and some things to keep us quiet. Hmmmm…. sounds kinda like slavery under a wise king. πŸ™‚

    1. Simon Lau says:

      I know if they taught it to me in high school it wouldn’t make a difference, my parents did the taxes (and still do now while I’m in university). If there was a free course somewhere now that showed me what I can and can’t expense, you bet I’d take it. It’s amazing what a few years will do to your mindset

    2. Shaun Carter says:

      I am a strong believer in a financial literacy program being worked into the national education system here in the US. I think a lot of the problems we are experiencing right now (subprime mortgages, negative savings rate, credit card debt, etc.) is the fault of students not being taught financial fundamentals in school.

    3. John says:

      They ARE purposely keeping you ignorant. Here’s some videos for you to watch on the subject. This video is all about how the income tax you pay (in America) is UNCONSTITUTIONAL.

      America: From Freedom to Fascism http://www.youtube.com/watch?v=3ueEfRXZCVA&feature=related

      This video talks about how the banking system works and came to be, and how bankers just create money out of thin air:

      Money as debt:
      http://video.google.com/videoplay?docid=-9050474362583451279

      This next video ties things together, and talks about how that unconstitutional income tax you pay really just goes to the interest that the federal reserve charges the government. Oh.. did you know that there is NOTHING “federal” about the federal reserve system itself? Yes, it’s a PRIVATE, FOR PROFIT CORPORATION that loans money (as debt) to our government AT INTEREST. πŸ™

      The Money Masters: How International Bankers Gained Control of America
      http://video.google.com/videoplay?docid=-515319560256183936

      Finally, this last video expands on things a bit more, and just shows what tools are used to control and exploit our nation, take away our civil rights and turn us into sheeple that willingly accept what the (banker controlled) media feeds us, and pay our taxes. πŸ˜›

      Zeitgeist – New World Government
      http://zeitgeistmovie.com/

      It’s alot of video, but hopefully a few people will watch it all and have their eyes opened!

      1. John Chow says:

        The only thing these videos tell me is I should buy bank stocks. As for unconstitutional, just remember, the constitution can be amended. This is why anyone who has ever challenged the tax system by not paying taxes has ended up in jail. Even if we were to assume the person wins, the only it would it trigger is an amendment to the constitution and we’ll be back where we started.

        As for purposely keeping people ignorant, I agree with you. The system is designed that way. The thing is you can decide which side of the fence to sit on. The rich side or the ignorant side. The funny thing is most people who figure out how the system works stay on the ignorant side.

  13. RacerX says:

    Great ideas for next yeear. I know you can write off the computers, but I think if it is your home PC you have to balance the percentage of work time on it.

  14. JBiggs says:

    Thank you for good information πŸ˜›

  15. Pete says:

    Very nice article. I’m still amazed how many people in US and Canada don’t realize they have to pay tax on web site income. It’s good to see you write this to remind everyone. Good job John.

  16. Very informative. And you are right, eventually your business must make money. A good reminder to keep those posts a-comin’.

  17. vutha says:

    Thanks for your good information, I never think before that income form blogging have been taxed.

  18. belhoste says:

    Great article, but I am not sure I wanted to be reminded that it is tax season again. I was feeling pretty good about just burying my head in the sand and hoping it would go away. Ah well, maybe next year πŸ˜‰

  19. Terry Tay says:

    Nice sharing, I didn’t know we can do that. I’ll will need to go find out more about tax deduction here at my place. Well, I do know having your own business and company can have some tax advantages. It’s definitely worth it to find out more and see how can you benefit from it.
    ~ Terry

  20. Gary R. Hess says:

    Great idea for a post John. That never occurred to me, hell, wish I would have known sooner and I would have kept a few receipts.

    Anyways, for some people (at least in the US) the taxes aren’t what gets you, it’s the Social Security (no way to get around it with deductions/exemptions etc as far as I know) and it is around 15% income in some instances.

  21. Mike Huang says:

    Interesting post, I’ll keep this in mind.

    -Mike

  22. As Xacur(the first commenter) mentioned, I suppose if you are not living in America you don’t have to specify tax detail. I am from Sri Lanka(The small island underneath India!), and I recall that when I signed up for Adsense I had to specifically mention that I don’t live in America thus, no tax cut.

    1. Automolove says:

      That doesn’t necessarily mean that you don’t have to fill out earnings from Adsense in your income tax papers in your own country. I don’t know about Sri Lanka, but I know that in my country, as long as I am living in the country, any money I earn outside of my country must also be taxed in my country (unless it has already been taxed in the country it’s coming from, which in the case of Adsense it hasn’t).

  23. Josh says:

    Damn Chow, I wish you would have made this post three days ago. I did my taxes Monday night and didn’t deduct anything for my site… I turn a decent profit so I easily could have deducted web hosting and some other expenses. I’ll remember this next year, thanks!

  24. Miley Cyrus says:

    I always wanted a job where you get paid to have fun ^^.

  25. Wow, didnt know about that car loophole. Thank god, i dont live in USA, you dont get taxes anywhere outside of USA! I love that part. So technically I am safe from all these corporate hassles, so to speak!

  26. Syed Balkhi says:

    have to say john this is a great post, i needed this help. I like some of these creative ideas about the research πŸ™‚ Sure will be implied in the year of 2008

  27. It would be great to see you in Dubai

  28. Andy says:

    I love this post! The idea of claiming great meals and travel as tax deductible expenses is very cool. πŸ˜€

    Personally, once I found that I could make money from the web I registered with my Tax authority and like John enjoyed some nice tax rebates.

    It is a good tip to fly under the radar with not claiming more than you earn,

    Andy

  29. The tactic is brilliant. Loved this post!

  30. Kiltak says:

    Something that a of people do not think about when it comes to tax deduction is the devaluation of their computer…

    Let’s say your brand new box is worth around $2000, and devaluates at a rate of 33% per year..

    The first year, you would consider the whole computer as an expense.. and the following year, you can take the value your computer lost, and deduct it from your total earnings.

    I love my accountant πŸ™‚

  31. Will says:

    lmfao… you count dinner as a tax deduction b/c you blog about it? lolololol!

  32. John, how are you writing off blog expenses with Revenue Canada? Is there a separate form that needs to be filled out when filing your taxes? Do you need to be an actual incorporated business to write these things off, or just be able to prove that what you spend is actually helping you make money in your business? Thanks.

    1. Pete says:

      Not sure about Canada, but at least in the US, you don’t have to be incorporated to run a business, and I imagine Canada is similar. You may wish to look up these terms in respect to Canadian law:

      Sole proprietorship
      Partnership
      LLC
      Corporation

      In very simple terms, if you don’t “incorporate” your blog, as John puts it, you’re running it as a sole proprietorship with little tax complications but also with unlimited liability should something go wrong (not that I really see how a blog could “go wrong”).

    2. John Chow says:

      The blog is incorporated and files a corporate return. You don’t need to be a corp to write stuff off. You would just add the income and expense to your personal tax return. There is a section for business income.

      1. I’m using uFile.ca, but don’t see any business income section. Would I put my internet revenue under “Other Revenue” and my expenses under “Other Deductions”? For some reason it won’t let me continue because I haven’t filled out the default T4 section with government deductions etc. Any advice?

        1. John Chow says:

          It’s on line 162, under the heading “Self-Employment Income” You’ll need to fill out a Statement of Business Activities (T2124), Business Income Summary (BUS) and CPP Contributions on Self-Employment Earnings (Schedule 8).

          uFile.ca should have all that unless they charge extra to file a self-employment return.

          1. Michael Kwan says:

            Nope, it’s there. When I filed my income tax via UFile last year, that’s how I reported my freelance writing income (and expenses).

  33. John, the best piece of advice that you gave in this post is to just put what you feel is a reasonable expense, and if the CRA has a problem with it, they will let you know! Here in Canada, income taxes are a self-assessment, when you sign it, you sign that it is to the “best of your knowledge”. Chances are, if you are declaring your income and paying taxes on $300K, you should have tons and tons of write-offs and they know it!

    Another important fact that many people forget is you must be making money, you can only write-off expenses against your income.
    John, you can even write-off Canucks season tickets, just include a post per game you attend, or a post about who you gave the tickets to! Most businesses write-off around 30% of their bottom line profit, so 15K for dining is a joke, they won’t care….because its what you do! Your entitled to it…the CRA allows this because its Economics 101, your bringing money into the economy.

    I wish there was a list somewhere of all the great seminars that you attend or recommend…its time to step up my game!

    Man….I love Canada!

  34. John, I forgot to mention, you should really consider and/or ask your accountant about incorporating this Blog. After I read the book “Rich Dad, Poor Dad” it changed my impression of the way the business world works. What are your thoughts on Incorporating? Is it worth it do you think?

    1. John Chow says:

      My blog is incorporated. It’s actually part of a pretty complex setup which includes two operating corp, one holding corp and one family trust.

  35. Jason says:

    Great post John. I was unsure what could actually be considered deductible so I skipped it for this year. I never really gave it any though, but will look in to it next year for sure. Guess it’s to late now sense I have filed already.

  36. Tech Blog says:

    Canada charges you income on your worldwide earnings? lol, don’t Canadians pay one of the highest amounts of tax in the western world? You should just move to Dubai. I find it humourous how you earn so much from this blog though? What is the appeal to people, what made it ‘famous’ It can’t be your name, because it’s generic, it can’t be the design, because its good, but nothing special, I don’t see anything here someone else can’t do, someone explain quick πŸ˜†

    1. The answer to this is as simple as it seems…he just did it! No procrastination, no himming and hawing, no sitting around doing nothing….he just does it, day after day. Your are right, anyone can do it! BUT, they have to overcome the procrastionation stage and execute on their ideas. We all have the same 24 hours in a day!

  37. Darin Carter says:

    Great Post … i’m doing my taxes as we speak and alot has come into play!

    Darin

  38. Yes as a loyal citizen we have to pay tax. Nothng sepcial in it. Tax may be deducted at source it self.

  39. Rodney says:

    Thanks for the great post. If people still have questions or need a little help they can come to H&R Block.

  40. Saim Baig says:

    In Pakistan i have never been asked to pay tax on what i earn from my blog.May be because of people don’t earn a lot from internet in Pakistan.

  41. Feed Flare says:

    LMAO @ “Why I blog about my dinner” Thats the best man. I use to write off my smokes years ago when gas bar bills where hand written.

  42. Dress up says:

    John Show is rich 😯

  43. Minchin Web says:

    Hey John! Thanks for keeping up the blog; it always makes for interesting reading.
    Another deduction people might be overlooking is their own homes. If you office is based at your home, your can deduct a portion of your home’s utility bills (and renovations). Don’t forget the garage if your “company” car is parked there regularly. I think the proportion is the percentage of your home that is used by the home business.
    As for those who commented that they’ve already filed for this year, look into refiling if you’ll save a significant amount of money. I know the CRA will allow you to refile personal income taxes for a number of years.
    While I agree with your advice to consult an accountant, you need to consult a good accountant. I have a friend who has a simple home based business and does just fine with some accounting software and QuickTax. One year he got talked into taking the business taxes to an accountant who promised to save him $1000 or more, but couldn’t save him a penny more without some serious number fudging. Hopefully your experience will be better.
    I’ll be back soon to see what your latest adventure brings, John!

  44. David says:

    I always wondered about this…thanks for explaining it…

  45. Jim Karter says:

    You are a smart man John!

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