Do You Owe Income Taxes On Blog Income?

Today is tax deadline day in the US and I’m sure there are many people waiting for the last minute to file their income tax returns. In that tradition, I’m filing this online income tax post on the last day.

If Your Blog Earns Income, You Owe Taxes On It

It would be great to make money online and not have to pay income tax on it. However, it doesn’t really matter where you earn your money. The IRS and CRA will want their share. This can include gifts and prizes as well. When Shoemoney won that BWM X5 for being the top Affiliate Dot Com affiliate, he has to report the cost of the car as income.

Unless the blog is set up as a corporation, income generated by it is treated as business income and added to the tax player’s job income for tax purposes. Unlike a normal job, there is generally no withholding tax on money the blog makes. Advertisers and affiliate network will pay you the full amount. It is up to you to remit the taxes owning at tax time.

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. However, the taxman does require that the expense 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

Blogging about what I eat affects more than my readers’ stomaches. By writing 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. The cost of the food at Dot Com Pho is part of the production cost and also tax 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 Gary Arndt did. Gary started traveling the world in March 2007 and has been blogging about the experience on Everything Everywhere 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. 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.

I should note that Zac Johnson actually didn’t buy a Hummer for tax reasons. While he could write off the monster SUV as a business expense, Zac uses it for personal enjoyment instead.

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 doesn’t mean dick if the blog makes zero or worst, loses money. Even though you can write off that trip to BlogWorld Expo New York, you still have to pay for it first. Not an easy thing to do when the blog is making nothing.

How About I Just Not Report The Income?

Legally, you have to report your online income. However, not everyone does that because of one reason or another. US and Canada income taxes 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 a decade ago. With the government automating much of the tax filing process, their worker bees 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 Uncle Sam coming down on you.


60 thoughts on “Do You Owe Income Taxes On Blog Income?”

  1. Zac Johnson says:

    Great tax summary! I’m sure plenty of people have spent the weekend finishing up their taxes and getting them in before the deadline.

    There was a Yahoo News article released today that said nearly half of the homes in the US won’t have to pay federal income taxes for 2010.

    “There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.”

      1. Shaun Carter says:

        I second that! Great car!

    1. nice hummer zac…that beauty takes lots of gaz eh? 🙂

      1. Zac Johnson says:

        Oh yea… depending on the price of gas, $75-$100 to fill it.

    2. well everyone is talking about tax and blogging.

    3. I guess all the rich people are paying taxes, and yet, the government still wants more.

      1. People always get to get the loopholes in the tax and after that they capitalise at full.

    4. Free Picks says:

      haha :p you are funny

  2. exsuit says:

    Great post, but I would definitely still recommend that anyone making any substantial money see a tax accountant to help them with their filing. For example, while prizes (lottery, sweepstakes, etc.) are taxable in the US, they are not taxable in the Canada. Even within a country tax laws are likely to be quite different (states/provinces).

    1. John Chow says:

      Actually, the tax exempt is only on government or registered charity owned lottery winnings. Prizes from commercial operations are taxable if the prize exceeds the min amount.

      1. Look that’s why I always recommend to have tax consultant.

        They will give you clear picture with more option and beneficial for long term.

  3. QOT says:

    Those are some great ideas. I wondered about your dining section, and then figured this was the reason. Best of money, food and travel…to save taxes. Good ideas here.

    1. These dinning save tax and with that they raise their viwership as well.

      1. I’m not sure I understand what you’re getting at here, not only is your comment nearly undecipherable, it is spelled pretty poorly as well.

        1. Hey Penny …

          I am saying that John’s dinning is saving tax for them and with that many readers also enjoy food post.

          Am I clear now my friend 🙂

    2. I always wondered about why John was posting about the food he eats too. Just figured it was a hobby. Turns out there’s a nice benefit to it too. lol

      1. Yes but however sometime these expenses can be disallowed as well …

  4. d3so says:

    I’m not reporting my blog income because I have none.

    1. John Chow says:

      Well, if you have none, you still need to pay the cost of running your blog. You can use those cost to reduce your income from other sources.

      1. John one more option for you … Start tax consulting blog as well …

        You have good indepth knowledge.

      2. Joel says:

        Wow this is good. I wonder if this strategy works everywhere.

      3. PPC Ian says:

        John brings up a great point. When you’re starting out, the first few years of any business can produce a net loss. You can write off these “startup costs” and even amortize them over several years, although you’ll want to consult your tax adviser. 🙂

        1. yes these kind of expenses can be adjusted in many financial year. This is like when you adjust a hefty expenses in many years.

      4. John, I was wondering, don’t you have a company or aren’t you a sole proprietary? isn’t filling out tax paper what your accountant should be doing? at 500k+ a year, I doubt you have not a form of incorporation or company or something…

        Please clarify this to us if possible 🙂

        1. John Chow says:

          Yes, it’s incorporated and yes I have an accountant who files the taxes. However, I’m also a fully qualified financial accountant. It’s what I studied in school.

  5. Thanks for the breakdown. I think most people don’t realize everything they can write off. There are tons of things they can do to write off everything, but YES, you have to pay taxes.

    1. Tax payment can be Nil as well provided you do not fall on those tax slabs.

      Just read yourself everything or hire a good tax consultant.

      1. PPC Ian says:

        It’s really important to have a good tax consultant. My taxes keep getting more and more complicated and I keep relying on more and more advanced help!

  6. Kristi Hines says:

    Great ideas for writing off expenses. Bloggers should bookmark this one for next year, as it might be a bit late for today – I filed mine over the weekend, but took most of these things into account. Plus I started a photography blog this year, so that will take care of some travel expenses as I always find things to shoot which will end up on that site in the end. 🙂

    1. Totally agree with you unless and until they do not change in their tax format.

      So get ideas from it and prepare your tax planning accordingly.

      However I would advice you to go for tax consultant for better tax planning.

  7. Blog is a business indeed! Awesome idea on how to reduce taxes. Definitely a nice resource to have for next year. Cheers!

  8. John,

    Does CRA ever give you problems with your blog – I spoke to several people and it is hard to deduct those meal expenses you have?

    Does it meet their criteria or is it considered entertainment?

    Thanks.

    1. John Chow says:

      It really depends on the blog. Remember what’s reasonable for my blog may not be consider reasonable for your. Is it reasonable for a blog that make $500K a year to have review expense of $5K? I haven’t met one accountant who say it’s not. However, you better be careful if your food blog makes nothing and you try to write off $5K in dinner bills.

      1. Yea, that just might get a red flag from the IRS.

      2. I know what you mean.

        Next time I am in Van – I should attend one of your dinners!

        Do you have a schedule?

  9. Julio says:

    At what point does someone need to start reporting their blog as income? Like how much a blog needs to make yearly to report it?

    1. John Chow says:

      Legally, if you blog makes any money (as in even 1 cent), you have to report it. But of course, not everyone will do that and the chances of the taxman going after you for not reporting 1 cent is next to zero.

    2. Just include your blog income from other sources and merge it with your main income.

      Demand appropriate expenses as well. Just keep your tax sheet as much as clean you can.

      1. Julio says:

        Thank YOU Chow, ZK for your replies.

  10. Lori Meyer says:

    Hi John:

    This is a very informative post! Most people probably don’t even know the write-offs they’re entitled to. With regard to declaring taxes on any income, honesty is the best policy. Karma does come in to play so it’s best to play by the rules.

    John, would you mind if I put this post (with your link) on my blog? Good reading!

    Thanks for the insight,
    Lori

    1. John Chow says:

      You may link to the post and quote a paragraph but you may not republish the entire post.

  11. Hey John,

    I started my blog in January of 2011 so I will be prepared for next years tax season. I feel the sudden urge to do a review on my local Outback Steakhouse.

    Thanks for the info…

  12. Can’t get away without paying taxes on your blog or any affiliate income.

  13. Mathew Day says:

    I was a procrastinator this year with my taxes and did them at the last minute. I don’t like having to give the IRS more money, but at least I got to write off quite a bit this year. :0) Great post, especially for the newbs.

  14. PPC Ian says:

    John,
    Very helpful post. I like your idea about writing off your gourmet meals. 🙂
    Best,
    Ian

  15. Techabouts says:

    good article John.
    No one generally thinks that they need to pay taxes for earning money as affiliates.

  16. Work online says:

    I would like to say thanks john for this great article.

  17. Nindo Mom says:

    I love this post. Personally, I’d never be comfortable not claiming income. Besides, as you mentioned, claiming the income opens up the opportunity to take deductions from your business.

    The safe thing to do IS NOT to fail to claim income–but rather, make sure to take all the deductions you’re due. This way, an audit will never have to be a worry for you: the most it would be is an inconvenience.

  18. Free Picks says:

    we do not have any tax on online income in Pakistan 😀

  19. fas says:

    Are you not in Canada, then why you pay to US?

  20. Ben Alagnam says:

    I hope that I won’t have any taxes here in Singapore for blogs. Is there any limit when not to pay taxes from blogs?

  21. Centist says:

    Good Tax Saving tips John….I can find similar loopholes here also

  22. Thanks John, great Tax Saving Tips.

    I nearly dont know about it before.

    Elva

  23. Oh everyone is now talking about blog and taxes here. You have a very good point John. The IRS wants more hahaha.

  24. I think there is really nothing in this world that would escape the eyes of the tax authorities. 🙂

  25. Interesting point about heavy SUV’s, I’ll be looking into purchasing that Escalade hopefully sometime in the near future.

  26. Steve says:

    I right off as much as I can but still do have to pay some tax. I like the office in the home deduction quite a bit. And if I do not make over $600 with a network than I don’t receive a 1099, which is great.

  27. Tax need to be paid for everything

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