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.