Tax Tips for Bloggers, Writers and Journalists Read the script here:
PROGRAM 2: Tax Tips for Bloggers, Writers and Journalists
Originally aired: Thursday, March 25 11:30 – 12:30 EDT
Introduction – Tax Mama
- Welcome and Introductions
o Thanks for joining
o Introduce hosts:
§ Chris Wilson, Master Tax Advisor
o Wilson has been a master tax advisor with H&R Block for 7 years. He also has experience in business management, coaching and investing. He holds a Bachelor of Arts in Business Administration with a concentration in Accounting. His areas of expertise include: investments/stock options, home ownership, real estate rentals or vacation homes, healthcare expenses, non-U.S. citizens, income earned outside the U.S., small business, sole proprietor or self-employed. He resides in Shelby, NC and served as a business mentor for Duke University Fuqua School of Business summer leadership program in 2006 and 2007.
§ Leigh Mutert, CPA
Mutert obtained her MBA from the University of Kansas and is a licensed CPA in Kansas. After beginning her career with Deloitte, she took time off to raise a family. She joined H&R Block in 2002 where she has successfully worked in roles ranging from tax professional to Business Development for the online products group. She is currently the Community Manager in the Social Media Marketing Department.
§ My name is Eva Rosenberg, Enrolled Agent
- I am the Internet’s TaxMama at TaxMama.com – author, nationally syndicated tax columnist at Dow Jones’ MarketWatch.com. I have decades of tax experience, starting with National CPA firms and spending the last 10 years answering your questions at TaxMama.com .
- Program is dedicated to providing bloggers and freelancer writers with tips to file a 2009 return
o Many of your blogs may have turned into a business – how does this affect your tax return?
o What qualifies as income, what must you deduct?
o Provide tips to help ensure claim all of the credits and deductions available to you as an entrepreneur
- Encourage questions – interactive program
Is your blog a business? – Tax pro #3 (spokesperson to be confirmed) Chris Wilson, Master Tax Advisor
- Whether your blog is a business or hobby directly affects how you report income and expenses from the activity
o Your blog may be directly related to a business activity, and that case, the decision is easy. All blog-related income and expenses should be reported along with the other business income and expenses.
o As a general rule, to be a business, the blog should be done regularly and continuously (not just when you feel like it) with the intention and possibility of making a profit.
§ Don’t have to actually make a profit to be in a business
§ Even though you may be making some money, that blog of yours may still be considered a hobby in the IRS’s eyes
o You can find more information on hobby vs. business on the IRS website and at TaxMama.com
Reporting income – Tax Mama
- Money you receive in your business or hobby is taxable. Period. Generally, the fair market value of a product or service you receive related to your activity is taxable as well.
- Barter is taxable. If you trade your product or service for someone else’s product or service – you have taxable income. And you may or may not have a business expense, depending on what you receive in exchange – for instance, you get dental work or a massage, in exchange for writing a press release or article for them to use.
o Fees – If another website pays you to include your blog on its website or you sell a blog article to a publication, that income is taxable
o Advertising income – Other websites may pay you to include a partner link on your blog page. Taxable!
o Product trials/endorsements – Manufacturers and service providers may ask you to try their product or service in the hopes that you will blog favorably about your experience. Even though they may give you the product or service for free, the value of what you receive is taxable. This is because the company expects something in return (the endorsement)
o So what if you chuck the product in the trash instead of using it or kindly decline the offer of a free oil change? No worries. This time it’s not taxable
o What if you use the product or take advantage of the service and hate it? This time, it’s taxable. You got benefit of whatever was offered, as lame as it may have been
o Isn’t there such thing as a gift? Yes, but not of a vendor’s product. Gifts are along the lines of a box of chocolates or a cute calendar that are sent as more of a warm and fuzzy for the vendor than a product push
Operating like a business – Tax pro #3 (spokesperson to be confirmed) Chris Wilson, Master Tax Advisor
- There are some straightforward things you can do to demonstrate your blog is a business
o Contact other bloggers for tips on how to increase your blog’s exposure and get site sponsors
o Set up a separate business account at the bank
§ Use this account for all business transactions
§ Keep records of what makes up each deposit and keep receipts and invoices for each check that you write
o Get a separate credit card for your business if you find that you prefer using a credit card to pay expenses
o Store your records in the order that the transactions occur
o Store paper records in a safe place such as a safe deposit box or a fireproof record box/cabinet
o Back up and firewall your computer records
o Complete and accurate records are necessary
§ For financial statements and tax returns
§ For proof of income and expenses if audited by the IRS
Claiming business expenses – Tax Mama
- Every business (or hobby) has its expenses. Let’s discuss some of yours
o Blog hosting fee – Unless you use a free blog hosting site, you may be paying upwards of $100 month to your site host for such things as storage and/or data bandwidth.
§ Fees are generally paid monthly and are deductible when paid
§ If you pay for several months ahead, you can only deduct the fees paid for the months during the year
o Computer equipment – Here’s a sticky wicket. Chances are pretty good that you use your computer for non-blog-related things. A computer is an example of equipment that is expected to last longer than a year, so it generally has to be depreciated. If you’re using your computer for business and personal reasons, I hate to say it, but you should be keeping a log of your business and personal use – as well as that of everyone else who uses it. Come tax time, you’ll need those records to determine the depreciable business use percentage.
o Internet access – More bad news, I’m afraid. It’s unlikely that you are paying any more for Internet access than you would be if you weren’t blogging or writing, so forget about writing off your Internet bill. You may, however, carry a separate data plan that you wouldn’t otherwise have. Now that we can talk about.
o Other expenses – There’s no end to the kind of expenses you may incur. Keep track of them. Claim every deduction to which you’re entitled! Get familiar with your own industry and expenses that are common in your industry – but don’t deduct expenses that you have not really incurred.
§ Marketing and advertising – maybe you’re the one sending out the chocolates, fuzzy dice, or the cute calendars!
§ Books and magazines – More writer know how!
§ Bank fees – for that separate bank account
§ Legal fees – It could happen
§ Accounting fees – when things really get rolling
§ Tax preparation – let the experts answer your questions and prepare your tax return that got a lot more complex when you started bringing money in
o Home Office – If you have an office in home, it can mean a pretty nice deduction, but the rules are very strict, and the IRS tends to scrutinize home office claims. – Chapter 7 of Small Business Taxes Made Easy explains how to get the highest legal deduction. To qualify for a deduction, in a nutshell, the office must, be:
§ In a separate room or area of your house
§ Your principal place of business
§ Used regularly and exclusively for business – in other words, not your dining room table, that you also serve family meals on.
§ If you blog or write in a separate room, but use your computer for personal purposes, home office deduction is not likely. If you sit on your couch, your deck, and your bed to blog, it would be very hard to say you used anyone place in your home exclusively to write.
§ And don’t overlook the power of saving. Your blog or articles may be very profitable. Explore just how much you may deposit into IRAs, Roth IRAs. As a business-owner, you may deposit 25% of your profits, up to $49,000 for 2009 and 2010 into a SEP-IRA. In fact, if you put your tax return on extension, you may fund that SEP-IRA until October 15th – as long as you don’t file your tax return before that.
What does this mean for your tax return? – Tax pro #4 (spokesperson to be confirmed) (Leigh Mutert)
- So now that you know how to determine if your blog or writing is a business or a hobby and what implications it may have for your tax profile – it’s time to discuss your actual return
- If your blog is a hobby:
o Report any income you receive on Form 1040 (line 21) as other income. Just the income.
o The expenses you get to report are limited to the amount of income you have – and to top it off they are reported on Schedule A as miscellaneous itemized deductions subject to a 2% of adjusted gross income limitation.
o Special rules apply to depreciation and a home office deduction, too.
- If your blog is a business:
o Assuming it’s a one person venture and you didn’t incorporate or form an S corporation, you report your income and expenses on Schedule C
o Good news is that your expenses directly offset your income and you can show a loss
o Bad news is that if you make more than $400 net profit, you’ll be paying self-employment tax
§ Self-employment tax equals 15.3% of net earnings, but it’s credited to your Social Security account and can help you get more money from Social Security when you retire.
§ Also, you can deduct half of your self-employment tax from your taxable income even if you don’t itemize
- Because you’re getting income that doesn’t have any withholding, you may want to consider making estimated payments
o You can pay with Form 1040-ES or make electronic payments https://www.eftps.gov/eftps/
o Sure, it’s tough to part with the cash, but you’ll have it pay it in eventually, and if it means avoiding an underpayment penalty and interest, it’s worth it.
o Your tax professional can help you determine if you need to make estimates and how much you should pay in
Wrap Up – Tax Mama
- Thanks for joining us
- I hope you’ve learned enough to convince you to treat your website, blog or writing gigs as a real business, not just a sideline. If you want someone to go over your tax return with a fine-tooth comb and give you some solid advice, use H&R Block’s Best of Both service. You will in-depth answers to your business questions.
- If you have any additional questions – get them answered for free – H&R Block is hosting 24-hour Tax Talk Line today – at 1-866-HR BLOCK or 1-866-472-5625 – in English or Spanish. Call or e-mail questions or submit them online at Get it Right Community –
- To Ask TaxMama, please visit TaxMama’s family at www.TaxMama.com – post your questions in the TaxQuips forum – and we’ll send you the Internet’s premiere free daily podcast.
- In fact, tomorrow, you will be able to find an outline of today’s show at TaxMama.com under Special Reports