Tax Time? Get Prepared!
One of my social media friends, Tyropearl, who pens the Interesting Observations blog tweeted an article suggestion request to me recently. Pearl wanted to know how someone in her position as a part-time blogger should declare blog income. It seems that she pulled in just enough money in 2009 to wonder how that income should be reported.
Paying Taxes
Without having all of the facts handy related to Pearl’s request, I can answer certain tax questions based on my own experiences. As my regular readers know I’ve been doing this kind of work full-time for seven years and have relied upon Turbo Tax since the very beginning to help me work through what has proven to be an increasingly difficult federal tax return to complete.
But the question at hand isn’t about someone like me rather it is about people like Pearl who are part-time bloggers, bringing in a small amount of revenue on the side.
Let me first say this: any income you pull in through your blog whether that be Google AdSense income, banner ad revenue, sponsored posts, text links or what have you is taxable. Mostly everyone makes something off of their blogs unless they purposefully have decided not to monetize it. That money is income and it is taxable.
1099-MISC
You’re probably familiar with 1099 forms too, right? The 1099 series is for reporting income and can cover a wide variety of income sources. For example, a 1099-INT is for interest income derived from a bank account. A 1099-DIV is for dividends and distributions. A 1099-G is for government payments. And so on.
But when it comes to blog income you should receive a 1099-MISC which is what self-employed or independent contractors get from their clients. Even though you work elsewhere primarily, to the IRS it is all the same: you made some money on the side and you need to have the correct form to prove it.
Tax Filing
What’s more, if this income is more than $400 for the year, then the IRS requires tax filers to file Form 1040, Schedule SE and pay a self-employment tax on those earnings. Yes, you may end up owing some money on that side income so ask everyone who paid you in 2009 for the appropriate form.
But get this: they only have to give you a form if your earnings from them totaled $600 or more for the year. Still, you are required by law to declare that income even if you weren’t given the form. Somebody may report what they paid you to the IRS and if you don’t declare that information you could be audited and penalized.
Tax Help
I am not a tax accountant so my advice will stop right here. If you are still not certain where you stand, then getting help from a tax professional may be the best course of action for you.
Resources
IRS.gov: 1099-MISC, Independent Contractors, and Self-employed
The Wall Street Journal: The Ins and Outs of Hiring an Independent Contractor
Tags: 1099-misc, blog income, Form 1040, Interesting Observations, IRS, Schedule SE, Tyropearl
Business | Matthew C. Keegan, 19 Feb 10
By Pearl, February 19, 2010 @ 7:12 pm
Hi Matt – Thank you so much for taking my request for this article. Yes, I was surprised (pleasantly though) to realize that I had made enough money to report to IRS this year.. I actually started thinking about it when one of the companies contacted me for completing address/SSN in order for them to send me 1099-MISC form.. it was time to get serious about something that started as a hobby for me
I didn’t know it was Schedule SE so thanks for mentioning it. After writing to you on twitter, I’ve been reading on the types of deductions that we can take, like the computer, domain, hosting, theme customizations, paid plugins etc.. what else?
.-= Pearl´s last blog ..How Social Media Can Make Life Easier =-.
By Matthew C. Keegan, February 19, 2010 @ 10:41 pm
Pearl, if you have a dedicated area of your residence set aside for your work as I do, then you can deduct office space. This About.com guide may offer some good ideas too: Tax Tips For Freelance Professionals.
By Dominique, February 20, 2010 @ 12:56 am
I am so glad I chose not to do the money making thing with my blog. That sounds just to complicated for me to wrap my brain around.
What an odd dichotomy – 600 for the employer but 400 for the employee? Odd.
Great post as usual and I am doing my usual with it!~ ha ha
.-= Dominique´s last blog ..Things I cherish =-.
By Matthew C. Keegan, February 20, 2010 @ 5:46 am
Thanks, Dominique. The $600 threshold for clients and employers was probably put into place to limit the amount of paperwork companies have to do when it comes to working with freelancers. Just one magazine article can cost $500 which means that one time article contributors would also have to be served a 1099-MISC. For big mags that can be thousands of people each year; what a headache.
Still, even if someone paid me $100 for work and I did not receive a 1099-MISC I must itemize and reflect that income. Then I get to do the SE form to help make my contribution to the IRS. Woohoo!
By Pearl, February 20, 2010 @ 7:33 am
@Matt – re: “Still, even if someone paid me $100 for work and I did not receive a 1099-MISC I must itemize and reflect that income. Then I get to do the SE form to help make my contribution to the IRS.”
Some companies don’t release payment before you made certain amount, e.g.: if I’ve made $98 with adsense, but haven’t received my payment yet, do I still reflect that on SE?
.-= Pearl´s last blog ..How Social Media Can Make Life Easier =-.
By Matthew C. Keegan, February 20, 2010 @ 7:36 am
No. Only reflect what Google paid you in 2009. December 2009 earnings do not show up until January and will become part of your 2010 filing. Check out Google AdSense: Tax Information for more information about your account.
By Pearl, February 20, 2010 @ 8:12 am
Great.. some reading for me this weekend.. thanks Matt..
By Matthew C. Keegan, February 20, 2010 @ 8:14 am
You are welcome, Pearl. You may also want to invest in a tax preparation program such as Turbo Tax. I am doing my taxes today and often have found deductions I would have missed had I done my taxes without assistance.
By Valentina, February 20, 2010 @ 11:39 am
I live in Canada but the tax system has some similarities when it comes to home based businesses – and internet marketing/blogging definitely falls into that bracket. In addition to being able to claim a percentage of your mortgage/lease there are other benefits such as a percentage of household expenses (if 10% of mortgage then 10% of insurance, services, etc.). I don’t know about the US, but in Canada the deductions are applicable to your entire income, i.e. if you made $50K in your job, and $5K in blogging, the expenses/deductions are applicable against $55K.
As your blog income increases it is important that you meet with your tax accountant and set up a business structure, i.e., LLC to make the most of your business.
.-= Valentina´s last blog ..Affiliate Marketing: Plan Your Campaigns =-.
By Matthew C. Keegan, February 21, 2010 @ 7:57 am
Good points, Valentia. And, yes, there are strong parallels between the way Canada and the US treats small businesses.
In Pearl’s case her income is quite small, but if her blog attracts a lot of advertisers and brings in more money, then a more permanent structure might be necessary. However, the fees for setting up and maintaining an LLC can be expensive, costing $700-1000 for the establishment and several hundred dollars annually in state filings. I know, because that is what I face each year.
I’m not sure how Canada’s tax code is set up, but in the US it is very complicated. Thankfully, certain tax software programs from H&R Block and Intuit makes it much easier to track down and take advantage of tax deductions.
By Joe Hobot, February 24, 2010 @ 9:32 am
I am still wondering my self what should I use for “Business Code” Writer? Publisher? 999999?
I do Adsense Income 1099-MISC Taxes for over 4 years now, but this year I decided to do it my self via turbotaxonline and it’s sooo confusing lol.
Looks like this year I’ll finally open a “business” which from what I heard Ill pay less on taxes due to expenses.
Last year I paid about 40% of income from Adsense taxes which I think it’s ridiculous!
.-= Joe Hobot´s last blog ..Yahoo and Twitter Are In Relationship =-.
By Matthew C. Keegan, February 24, 2010 @ 9:40 am
Joe, I am not sure if the title is as important as all that. I am “listed” as a creative or technical writer, but my work encompasses far more than that.
In any case, forming a legal entity may be the way to go. I have an LLC and it offers numerous tax advantages as well as keeps me from being personally liable in the event someone takes action against my business.