Many bloggers start as hobbyists and grow to operate a full-blown business, but filing taxes the first few times feels like trying to interpret Egyptian hieroglyphs. While an accountant is helpful as your business grows, you should know that it’s not as difficult to learn about filing your own taxes as you fear.
All you need is the right knowledge and an organized system to get started. Here’s what you should understand about taxes and blogging.
1. Remember That US Taxes Apply Worldwide
The top appeal of blogging is the ability to work for yourself anywhere in the world, and if you work remotely in a different country, that doesn’t mean you’re required to pay income tax, right? Wrong. That’s a myth that costs quite a lot for the blogger who buys into it.
What if you’re a U.S. citizen, but you work for a company in Canada? You still pay taxes to the U.S. What if all of the above is true, but you’re physically living in Mexico? Guess what — you still pay taxes to the U.S. You’re subject to taxation, as a U.S. citizen, of any amount you earn, no matter where in the world you work.
Don’t buy into the myth unless paying taxes is your favorite thing in the world. The IRS will give you plenty to pay back if you do.
2. Report All Income to the IRS
Bloggers get paid varying amounts depending on who they blog for, but they’re still required to report all income to the IRS — even those extra pennies.
Remember, you don’t receive a W-2, and most employers count you as a freelancer. You receive a 1099 if your income is over $600, but no matter what pay you take home, you must report all income to the IRS.
3. Be Careful Mixing Business and Personal Expenses
Shouldn’t all ordinary and necessary expenses related to blogging count as deductions? Within reason.
You need to partition out the business expenses to claim any deductions, such as computer software, internet connection, cell phone bills and website hosting. If you use the same internet for personal reasons, you only claim the percentage of time you spend online for work.
The best solution is to open another bank account for business solely and only spend from this account for your business expenses. Your business expenses will primarily stay in one place. Store your debit card for this account separate from your personal debit card to avoid mix-ups.
4. Claim Your Home Office Deduction
Don’t miss out on claiming your home office deduction — a percentage of rent and mortgage applies, including what you pay for utilities.
Say that you use a separate bedroom as your home office. If you use that extra room solely for business, the full square footage counts toward deducting a portion of your mortgage or rent.
If your home office doubles as a guest bedroom, then you can only deduct the portion utilized for business. For a small area under 300 square feet, use the simplified method, and deduct $5 per square foot. Separating this area with partition physically marks your business space and helps with keeping the IRS off your back if audited.
Sadly, the couch you sometimes lie down on to rest your sore back while writing doesn’t count since you also binge watch Netflix from the same spot.
5. Know That Advertising Your Business Counts
Announcing your prowess as a blogger is also deductible. Advertising your business as a blogger counts — business cards and Facebook ads are deductible. Keep track of your receipts.
6. Keep in Mind: Hobby Blogging Differs From Operation as a Business
Blogging as a hobby counts as fun while blogging as a business means operating seriously. When starting out, your income will be low, but if it resembles more of a hobby than a sustainable business, what you deduct looks different.
According to IRS guidelines, you can only deduct expenses up to the amount of your hobby income. Say your take-home income was $100. The maximum amount of deductible expenses would be $100. It’s acceptable to carry forward extra business expenses if keeping business-like records and intending to make a profit. You may not make a profit every year, but the expectation is there.
7. Plan Ahead for Estimated and Self-Employment Taxes
As a non-traditional employee, you’ll likely face estimated taxes on a “pay-as-you-go” system. Since taxes aren’t regularly deducted, you pay estimated taxes each quarter to the IRS on April 15, June 15, September 15 and January 15. If the dates fall on a weekend or holiday, you pay taxes on the next business day. If you fail to pay, you may owe a penalty.
It’s best to set aside a particular percentage of your income in advance. Some bloggers set aside as much as 30 percent. Stay on top of self-employment taxes. As a blogger earning an income, the IRS recognizes you as a self-employed business owner who pays the employer and employee portions, and the self-employment tax is the combined Medicare and Social Security taxes. Plan ahead and you’ll be fine.
Get Through Tax Season Without an Issue
Use these tips to survive the tax season as a blogger, and don’t fall for tax myths only to owe the IRS more in the end. For example, just because you reside remotely in a different country doesn’t mean you don’t have to pay taxes as a U.S. citizen. Though, you can deduct square footage for your home office and percentages of particular bills.
Keep track of your expenses and receipts, and plan ahead for estimated and self-employment taxes. Once you have a system in place, all you need to do is focus on the work you love.
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