Today TaxMama hears from Jim in California who tells us. “I’m an affiliate marketer and have spent a lot more money on ebooks and courses than the amount of income I have generated. Are the ebooks/courses tax deductible? Under what category should I put these expenses?”
Making a fortune on the Internet looked really easy before you started, didn’t it?
Once you take the plunge and start to learn all about building a membership base, or a mailing list, to create sales pages and landing pages, to build appealing websites and to develop products, or to find the right products to re-sell or recommend, you suddenly come up for air – and months have passed.
You realize you’ve been buried in the whole process for months, selling very little as you learned the ropes. But, oh my goodness, you’ve spent thousands of dollars!
It takes a while to build up a profitable Internet presence. And if you scratch an overnight millionaire, you’ll find someone who’s invested substantial time, and often money, to get there.
How do you deduct all the learning costs? IRS looks at business education two ways.
1) Learning a new trade or business is not deductible as an employee. Is it deductible for a new business? No. Not before the business opens its doors and is ready to do business. Before that, it’s called “Start Up Costs”. And you can deduct up to $5,000 worth of start up costs in the first year you are in business, provided the business has started generating income before the year-end. (Or was open to start selling, but no one came to buy…)
We had a whole long discussion about this issue a while back. And the matter was clarified by Doug Thorburn, EA http://taxmama.wpengine.com/start-up-costs/
Start Up costs come up again and again. http://taxmama.wpengine.com/business-standard-deduction/
These other TaxQuips will explain what do with your start up costs that are over $5,000.
So, in this case, report up to $5,000 on Schedule C, page 2, as Start Up Costs. Attach a schedule listing what those costs consist of – setting up the website, taking courses, learning copywriting, paying for initial artwork, etc.
2) Once the business has started, you can continue to learn to market it and develop it. Then it’s called Education. If the class has other qualities, like a membership arrangement, with information sharing among the members, you can call it dues. When the program sends you sign-ups or sends visitors to your site as part of the training, it’s advertising.
So look at what you’re really paying for to determine exactly where to take your deductions.
Now, enough about taxes. Let’s look at your spending. Do you really need to invest in every terrific education opportunity that comes along? Once you start, it’s like a addiction. The offers are designed to create a compulsion to buy. Why do you think Joe Vitale calls it hypnotic marketing? http://joevitale.com
Resist the compulsion to buy for a while and start to actually work your site. Implement the information you’ve already learned. Or read and implement the information you’ve already bought.
And until you start to generate revenue, if you must learn more about how to build your online business and market it, consider reading some of the excellent free material out there.
Ken Evoy is one of the most successful Internet Marketers out there – and has been here since the outset of the commercial Internet. Definitely a grand-daddy of online marketing and affiliate programs. Here is Ken’s complimentary Affiliate Masters Course
If you want to sell ClickBank-based products, THE guru in that industry is Harvey Segal. His definitive work on how to use ClickBank also costs nothing. Here is your Guide to ClickBank
Have a fabulous 2008!
And remember, you can find answers to all kinds of questions about Internet Marketing, and other tax issues, free. Where? Where else? At www.TaxMama.com .[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]