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Blog Income And Taxes

written by John Chow on March 21, 2007

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Tax time is here and I’ve received a few questions asking me to do a post on the how income and taxes should be handle with a blog. Most of the information I’m going to present deals with Canadian tax laws and what little I know about the US tax system.

If Your Blog Earns Income, You Owe Taxes On It

It would be great not to pay income tax on money we make online. However, if your blog makes money, the IRS and CRA are going to want their share. From a legal standpoint, income from a blog is treated as business income and added to the tax player’s job income for tax purposes (unless you set up your blog as a corporation).

Unlike a job, advertisers and ad networks pay you the full amount of your advertising dollars without any withholding tax. It is up to you to remit the taxes owning at tax time. Because blog income is treated like business income for the purpose of tax, you are allow to deduct reasonable business expenses that are associated with running the blog. For example, you can deduct the cost of web hosting and advertising. If you run the blog out of a room in your house, you can deduct a portion of the rent or mortgage interest that room takes up. You can also deduct a similar portion for the heating/hydro/power and telephones.

You can get very creative with the expenses. Want to deduct the cost of a 1999 dining experience? Do a review of the restaurant and the dinner just became a business expense. There are rules for these deductions so you should check with your accountant before writing off the mistress as a cost of doing business.

How About I Just Not Report The Income?

Legally, you have to report the income you make online. However, not everyone does that because of one reason or another. US and Canada tax are done on the honor system. Both governments will accept whatever you report on your tax report as true. However, certain things will raise a red flag and that can lead to an audit.

The chance of getting an audit now is greater than it was 10 years ago. With the CRA, and I’m sure the IRS as well, automating much of the tax filing process, their workers can spend more time doing audits and less time filing tax returns.

It really all boils down to your comfort level. I wouldn’t recommend not reporting your online income. The little amount you save in taxes isn’t worth it.

How Do I Do It

This blog started as just my personal home page. I donated all of the blog’s 2006 income to charities so the tax bill wasn’t that great. For 2007, the blog is part of the online properties of TTZ Media Inc. If the blog maintains its current income level of $7,000 per month, it would owe over $22,000 in income tax if it were still in my hands. As a TTZ Media property, the tax bill would be $14,280. This is before deducting any operating cost but for me it’s better to operate the blog as a corporation than a proprietorship.

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