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.