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.
Click here if you missed Part 1 of Tax Tips for Bloggers!
For many of us food bloggers, blogging is a way of LIVING THE DREAM (AKA making money by doing something we really enjoy). While making money is wonderful, from a tax perspective, the lower your net income (that is, income earned less eligible expenses) the less tax you have to pay come April 15th. My first Taxes for Food Bloggers post discussed the important issue of determining whether your blogging activities are business or hobby related. Once you make that key determination, the next step is to identify any expenses you’re able to deduct to offset your blogging income.
Good news, friends.
There are LOTS of eligible expenses you can claim on your tax return, but before you can deduct an expense, you must determine whether the expense was incurred solely for blog purposes, solely for personal purposes, or a mixture of both. Generally speaking, expenses related to personal usage (i.e., not blog related) are not tax deductible. (Insert collective “dangit” here.) Mixed-used expenses must be allocated between the portion related to personal use and blogging use.
For example: HOME INTERNET EXPENSE. Let’s say you spend $50 a month for internet. If your blog is the sole purpose for having internet access at your home, the whole amount ($50 * 12 months = $600) is deductible. Granted, most of us access the internet for more than just blogging, and thus, home internet is a mixed-use expense. Bloggers must determine the proportion of their total internet usage time that relates to blogging usage versus personal usage. So, if a blogger determines his or her home internet usage to be 60% blog related, then 60% of the expense is deductible (60% * $600 = $360), while the remaining 40% ($240) is a nondeductible personal expense. Make sense?
Hey blogger, nice assets.
In addition to monthly expenses like home internet and cell phone costs, bloggers can also deduct the cost of their assets (laptop, camera, lenses, etc.). Generally, businesses deduct a portion of an asset’s cost over its useful life. This is called “depreciation expense.” A computer, for example, typically has a 5 year life for tax purposes. So, a business will claim a portion of the computer’s cost as depreciation expense each year over its 5 year life. From a blogging perspective, if the asset (laptop, camera, etc.) is used for both blogging and personal use, we again have to determine the proportion of the use that’s related to blogging purposes.
Say I have a laptop that cost me $1,500 and a camera that cost me $1,000. If I use the laptop 50% of the time for blogging, only 50% (or $750) will be eligible for depreciation expense. If I use the camera solely for blogging purposes, all $1,000 is eligible for depreciation expense. Tax software programs automatically calculate the amount of tax depreciation expense each year based on the asset’s life, but for those who are interested, here’s a link to depreciation rates by year: MACRS Rates Table A-1. (One other note: if the asset(s) are used more than 50% for business, taxpayers have the option of deducting the entire business cost basis right away (instead of deducting a portion every year over the asset’s life) via the §179 expense deduction election.)
Is it ordinary, necessary, and reasonable?
If your blog is considered a business, you can deduct any expenses that are ordinary, necessary, and reasonable for your business. If your blog is considered a hobby, you can also deduct ordinary, necessary, and reasonable expenses, BUT these expenses are limited to the amount of hobby income generated, AND these allowable expenses are further reduced by 2% of your Adjusted Gross Income. (Check out my first Taxes for Food Bloggers post for more info.)
Click here to read the rest of Mary’s post, which includes a list of key expense categories to consider and the importance of documentation.