When I get together with bloggers, the conversation always turns to business. And I always bring up taxes. Whether you realize it or not, once you monetize your blog you have created a business and you need to pay taxes. If you think the IRS won't care about your little blog, you're wrong. My blog back when it was very little was audited. I've learned a lot over the years and the person I learned the most from is my trusted accountant, Paul Mianulli. I asked him to write a guest post about taxes specifically for bloggers. Hope this helps!
By Paul Mianulli CFP®
We just completed our busiest tax season ever and I thought I would take a moment to share some of the important issues we observed as our staff worked through hundreds of tax returns from members of the blogging community. Our firm specializes in the accounting needs of self-employed folks. We saw early on that bloggers would have special accounting and tax needs beyond what the typical self-employed person faces on a day-to-day basis. It's been a real joy for us to watch our clients grow ever-larger into the blogging space - and to see their incomes grow as well. Let's get right to some of the important and easy-to-implement strategies that can keep you out of trouble as you grow your business.
Run Your Blog Like a Business
It's important that your blogging activity be run as a business. Whichever business entity you have chosen (e.g., Sole Proprietor, Partnership, LLC, Corporation, or even if you haven't yet decided), you must be consistent in your accounting. When we represent bloggers at audits, this is generally the first thing the auditor looks at, because if you're not treating your activity as a business, then don't expect the IRS to. That means that you would not be entitled to the many wonderful and significant benefits the tax code has to offer business filers.
My experience has been that many traditional accounting firms don't fully grasp the intangible nature of what occurs in the blogging universe. Unlike a customer at a brick-and-mortar store, your next customer, although thousands of miles away, is just a click away. Since you will likely be generating income from all over the US (and even the world), it may make sense, therefore, to establish a business entity but registered it in a state other than the one reside in. We often find this to be the case with our clients who have internet-based businesses. If you need help with this process, contact our firm and we can guide you through the process - or even do it all for you virtually.
So I Made Some Money, Now What?
It's very important that you report all of your income from whatever source. This is probably the issue that triggers the most audits. Many don't understand that the IRS has many tools at its disposal now for determining if you are reporting all your income, so it makes sense to just properly report it. Besides, there are many legitimate deductions you can take, and odds are, you're missing many of them. Which leads to our next item...
Expenses, Receipts, and Bills... Oh My!
You need to properly document what it's costing you to run your business. The law requires that you keep books and records. Yes, this means saving receipts. Many of our clients now just snap a picture of the receipt with their phone and immediately send it to Evernote, OneNote, Dropbox, Google Docs, etc. This is particularly important with the thermal-printed receipts we often get now, which tend to fade, especially at warmer temperatures. We have had the IRS deny expenses because the receipts documenting the expenditure had faded to the point that they were not legible. Please keep in mind that your credit card statement is NOT sufficient to document your business expenses. The IRS will want the detail that's found on the receipt.
The good news is that expenses related to running your business, including marketing and auto mileage, are normally deductible provided you do it properly. This includes travel and meetings with brands and other bloggers. Different rules apply to the purchase of capital assets such as desks, furniture, computers, cameras, etc., which must be depreciated. If you run your business from your home as many bloggers do, you can potentially deduct such things as homeowner's insurance, utilities, and trash pick-up, provided you meet the IRS requirements for doing so. Professional fees you pay for business-related advice and services (e.g., accounting) are also deductible.
Other Forms and Important Tax Documents
Make sure that you issue a Form 1099 to individuals, law firms, or entities that you pay. The rules for this are somewhat complicated and there is good information on the IRS website. The IRS is using these now to verify the deductions you are claiming on your return. I'm amazed at how many accounting firms drop the ball here and get their clients in trouble. If you want to keep the IRS off your back and give the impression that you're maintaining good books and records, this is a great way to do it - and the tax code requires that you file the forms and mail a copy to the recipient.
Are There Ways to Reduce my Taxes?
Now for the good news. There are many perfectly legal techniques for significantly reducing your tax liability. Add a few days vacation to a business trip, and all of the airfare is usually deductible. Have your business establish a retirement plan for you and, when properly set up, take a full deduction for it. We're just scratching the surface here. Our clients have significantly reduced their tax burden by employing simple strategies, often with minimal or no change in their day-to-day operations. Find a trusted tax professional who can guide you through this process and you will see the benefit quickly.
Pay Taxes Every Three Months... Seriously
The last item for this short summary is to make sure that you file and pay quarterly estimated taxes (federal and state). It really isn't complicated and will save you grief and penalties (and interest) if you just do it. You can find the due dates and the necessary federal forms on the IRS website. Many bloggers just have their accountant prepare the filings for them.
Ciao For Now...
That's all we have time for right now. Our office is busy with several upcoming IRS audits of blogger tax returns that were self-prepared, and we're finishing up the returns we placed on extension (some folks just wait until the last minute - but hey, we love all our clients). Be sure to visit our website and like us on Facebook.
Paul Mianulli is the Managing Partner of Linthicum Tax Service, located near BWI Airport just south of Baltimore. We're passionate about meeting the accounting needs of the blogging community. Contact us to join our growing family of clients. The information contained in this article applies to US tax law and is for general information purposes only. Your circumstances may be different from those described. Consult with a professional familiar with your unique situation.
