With tax time just around the corner, I’ve been seeing a lot of talk and questions in Facebook groups about small business taxes. So, I’ve put together this post with frequently asked questions about taxes and deductions for bloggers and online businesses. Let’s jump right in, shall we?
Disclaimer: While I have some experience with my own business taxes and have worked closely with accountants in my experience as a bookkeeper, I am not an accountant. It’s always best to speak to an accountant about your specific tax situation.
Q: When do I need to file my taxes?
The deadline for filing your 2016 taxes is April, 18, 2017. Depending on your situation and income, you may be required to make quarterly estimated tax payments. Failing to make these payments can result in a penalty when you file your tax return.
Q: Do I have to report my income, even if it’s less than $600 or I don’t get a 1099?
Yes. All income should be reported, even if you don’t receive a 1099. If you are a sole proprietor, you will report your income on Form Schedule C.
Don’t freak out – you can offset some of this income with business expense deductions.
Q: Which small business expenses are tax deductible?
There are tons of expenses you can deduct as a blogger or online business owner, and some you can’t. In order to deduct any expense, it must be “reasonable and necessary to your profession” and they need to be used exclusively for your business (not personal).
- Transaction and listing fees for online shops
- Paypal and credit card processing fees
- Stock Photo Subscriptions
- Membership Sites
- Resource Libraries
- Domain purchases and renewals
- Framework (like Genesis)
- Website Themes and Plugins
Professional Services Fees
- Graphic Designers
- Virtual Assistants
- Blog Coaching or Consulting
- Office supplies – pens, paper, toner, etc
- Materials if you make a physical product
- Courses, Classes, Workshops
- Office equipment – Desk, computer, printer, filing cabinet
- Cell Phone
Home Office Expenses
If you use a home office exclusively for business, you may be able to deduct expenses for the business use of your home.
Read more about the Home Office Deduction here.
- Ads – Facebook, Pinterest, Twitter, Print, Sidebar, etc.
- Giveaway Items
- Hotel Stays
- Meals (during business related travel)
- Packaging Materials
Q: What happens if I spent more money than I made?
You can claim an operating loss if you had more expenses than income. However, this should not be regular practice. If you are just starting up, or had a rare bad year, claiming a loss is acceptable. Many business won’t turn a profit their first year, or even first couple years.
However, in order to continue to use business deductions to offset your income, your business activities need to actually be a business, and not a hobby. An activity generally qualifies as a business if it is carried on with the reasonable expectation of earning a profit.
Consider the following factors to help determine if your business qualifies as a business and not a hobby:
- You carry on the activity in a businesslike manner,
- The time and effort you put into the activity indicate you intend to make it profitable,
- You depend on the income for your livelihood,
- Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),
- You change your methods of operation in an attempt to improve profitability,
- You (or your advisors) have the knowledge needed to carry on the activity as a successful business,
- You were successful in making a profit in similar activities in the past,
- The activity makes a profit in some years, and
- You can expect to make a future profit from the appreciation of the assets used in the activity.
The IRS states that “The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year”
For more information: Business or Hobby? Answer Has Implications for Deductions
What are you doing to prepare for tax time?