Every week, we share one of our favorite ‘how-to’ posts about blogging, social media, and the community we LOVE to love. Our desire is you consider HLB a resource in your efforts to blog BETTER – we want to be stronger bloggers ourselves, and we see the desire for stronger posts and cleaner designs. We understand wanting to know the BEST plug-ins, aps, programs, and resources to keep your site in tip top shape. And nothing makes us nerd-out more than getting super meta about all things blog-world. We’re not experts, we’re simply bloggers ourselves – sharing our own experiences, tips and tricks of the trade each Thursday with a BTT post. We welcome your questions, your suggestions for future topics, and your ‘how-to’ post recommendations to Emily at firstname.lastname@example.org!
This week’s post is from Mary, who writes at Fervent Foodie.
Eater, writer, bean counter. So say my business cards, yet I’ve never touched the topics of accounting or taxes on this here blog. I mean, taxes… Blegh. Am I right? But after attending the International Food Bloggers Conference in Seattle last week, I got to thinking. Did these foodies know food blogger conference expenses are tax deductible?
Business or Hobby?
You dedicate all of your free time to your blog. It’s like, a second job or something. Right? That’s how most serious food bloggers feel about their blogs, but the IRS may see it differently, and that could majorly impact the Federal tax due on your blog earnings. Whomp. Whomp.
So, is your blog a business?
For purposes of this analysis, lets assume you have not set up a separate legal entity (LLC, S Corporation, etc.), and that you are running this “business” as a sole proprietorship. This is the bucket most food bloggers fall into.
The big question at hand: do you blog primarily for profit or pleasure?
Here’s how the IRS tests this question:
Do you carry on the activity in a businesslike manner?
Does the time and effort put into the activity indicate an intention to make a profit?
Do you depend on income from the activity for your livelihood?
If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
Have you changed methods of operation to improve profitability?
Do you have the knowledge needed to carry on the activity as a successful business?
Have you made a profit in similar activities in the past?
Does the activity make a profit in some years?
Do you expect to make a profit in the future from the appreciation of assets used in the activity?
TAX TIP: A general rule of thumb is that if your “business” makes a profit in three of the last five years, it’s considered to be an activity you’ve entered into for profit.
Why does this matter?
If an activity is a bonafide business, you can deduct all the expenses from the business, even if that means reporting a loss on your tax return. If the activity is classified as a “hobby” you’re not able to deduct net losses from the activity AND your hobby-related deductions are only deductible to the extent they exceed 2% of your adjusted gross income. Ouch.
On the flipside, if an activity is a bonafide business, net income from the sole proprietorship is subject to self employment tax (2014 rate was 15.3%, 1/2 of which you can claim as a deduction for AGI). Income from hobbies is not subject to the self-employment tax.
Click here to read the rest of Mary’s post, in which she crunches some sample numbers which show how the classification of your blog can make a difference. And stay tuned for part 2 next week!