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So, you’ve started your blog or a side business, you spent some money getting it up and running with the hopes of making some money, and maybe you’ve even made a few bucks. Now that its coming up on tax season, you might be thinking “Do I have to pay taxes on the money I made” or “Can I use what I spent on my side business to lower my taxes”.
As an accountant who has worked with a ton of people earning a side income, trying to start small businesses, freelancers, etc, I’ve gotten tons of questions just like these. Here are a few common questions and their answers to help you.
Do I have to pay taxes on my blogging income?
The short answer is yes. If you earned any money from blogging whether through affiliate sales, sponsored posts, ads, etc, you need to report that income on your tax returns. You pretty much have to report any income from any side hustle.
Many affiliates and advertising networks will actually send you a Form 1099 at the end of the year telling you how much they have paid you for the year which they also send to the IRS. But even if you do not receive a Form 1099, you still have to include the income on your taxes.
Do I have to pay taxes on MLM sales?
Yes, if you sell any multi-level marketing products (think Arbonne, doTERRA, LuLaRoe) then you need to report income from your sales on your taxes. Basically any money you make, even if it’s just a side hustle, needs to be reported on your taxes.
Do I have to create a company or LLC?
You are NOT required to create a company in any form (corporation, LLC, S Corp, Partnership). But it may be something you WANT TO do.
Forming a company can be beneficial because it creates a separation between you and your business and can help protect your personal assets from your business assets, debts, liabilities, etc. The downside of forming a company is that there are usually additional costs and additional document reporting requirements for taxes and with your state agencies.
Hiring an attorney to help you with this can be very costly. If you are tight on a budget, check out LegalZoom and you can use their templates to form your corporation at a fraction of the cost.
What expenses can I deduct on my taxes?
In general, you can deduct all expenses used to carry on your business that are common and accepted in your line of business, and that are helpful and appropriate for your business.
This is a very broad definition and can easily get confusing. The easiest way to look at this is to separate your expenses into 2 buckets:
- Personal, living and family expenses – think rent, groceries, medical bills, etc
- Expenses used for the business – if you’re a blogger, this would be things like web hosting, Pinterest training courses, social media platforms and schedulers, even your computer. If you have an MLM, it could be the sample products you buy, your inventory, marketing materials, credit card processing fees, etc.
Now there may be some things that fall into both buckets, like your internet service at home. In many of these cases, you can deduct a portion of these expenses as well.
What happens if I’m losing money on my blog or MLM?
Generally, you may show losses from your blog or MLM on your taxes. These losses may offset other income you have earned from other sources, such as a full or part time job, or income from another business.
An exception to this is if your blog is deemed to be a “hobby” according to IRS standards.
What do I do if I run my blog/business with a partner?
Generally, you and your partner can report each of your shares of the income and expenses on your individual tax returns, depending on your agreed upon terms. For example, if your blog had $100 of income and $50 of expenses, you would show $50 of income and $25 of expenses on your taxes, and your partner would report the same.
If you have a partner, it is probably a good idea to look into forming an LLC or Partnership. This will help define and document what share of the income and expenses of the business you and your partner are each entitled to and responsible for. It also helps determine what you do if you decide to go your separate ways for any reason.
Again, going through an attorney can be costly, so if you have a limited budget, check out LegalZoom and create your LLC or Partnership yourself using their step by step templates!
What do I do if I didn’t keep track of my income?
If you find yourself in a position where you get to tax time and you realize you haven’t kept track of your income, just relax and take a deep breath. You should be able to get reports from your income sources for the year (eBay, Etsy, affiliate network, ad source, etc).
You should also get copies of all your bank statements for the year and go through them to identify all deposits from your blog or side hustle.
And I would DEFINITELY recommend starting to keep track of things from now on! CLICK HERE for my FREE Business Budget Spreadsheet for Bloggers you can use to manage your business finances! And you don’t have to be a blogger to use it, it works for any side hustle or small business! The image just above is a screenshot of the Business Budget spreadsheet.
What do I do if I didn’t keep track of all my expenses? Can I still deduct them?
Welcome to the club most of us are in! If you find yourself in a position where you get to tax time and you realize you haven’t kept track of your business expenses, just relax and take a deep breath.
You should first get copies of all your bank/credit card statements for the year and go through them to identify all expenses from places you have business expenses with. If you have services you get charged the same amount every month, like web hosting, just take your monthly fee and multiply it by the number of months you had the service.
And I would DEFINITELY recommend starting to keep track of things from now on! CLICK HERE for my FREE Blog and Side Hustle spreadsheet you can use to manage your business finances! Below
Do I need an accountant or can I do my own taxes?
You definitely do NOT NEED an accountant, even if you have your own business. There are many types of tax software like Turbo Tax or H&R Block that walk you through entering your information step by step. Check out my post “7 Reasons to do your own taxes and not be afraid”.
That being said, having your taxes done by an accountant can definitely ease the stress and anxiety, and can also free up your time to continue to work on your blog or business rather than spending it on taxes.
If you decide you prefer to hire an accountant, as a fellow blogger and Certified Public Accountant, I understand the needs of other bloggers and folks with side hustles, trying to make some extra income, or starting and running their own business. Check out more about my Tax and Financial Coaching Services here, or please CONTACT ME at Rob@yourhealthyfamilycoach.com. I am offering a special rate of $199 for bloggers and you guys with side businesses having sales of $5000 or less. If your sales are more than $5000 for the year, please CONTACT ME HERE or email me for a price quote!
Or if you just have a question, answers are FREE of charge!