Hello everyone! I know I have not posted in a while- but I am back! I have been busy studying new tax laws and preparing all of my clients for tax season. As we all know tax season has finally arrived!! This means crazy busyness for me and my business. I wanted to take the time out to address many fabulous business owners, self-employed people and bloggers who have reached out to me with tax questions. In this post I am giving some tax tips based on IRS law. This is NOT legal tax advice- this is advice based on my knowledge, IRS publications and work experience. So here it is guys; to all my followers, business owners, new-comers, bloggers or anyone who needs any help with what to do with self-employment income, get a note pad and take some notes!
7 Useful Tax Tips
1. The US Tax Code is based on the idea of ‘worldwide taxation’which (in my interpretation means) if you are a US citizen, you are subject to tax on your global income no matter where you are located or no matter the source. So, if you’re a US citizen blogging for example, a Canadian company, that income is still taxable in the US. And if you’re lucky enough to be a US citizen blogging from some remote garden spot outside of the country, still taxable. Don’t get fooled into believing that you have to live in the US to be subject to US tax.
2. Income is reportable to the IRS no matter what form you receive and what amount you are paid. Forms W-2 are only issued to employees of a company and most self-employed or bloggers are freelancers, NOT employees. It’s more likely that you’ll receive a form 1099 but only if your annual income exceeds $600. However, no matter whether you receive a form or not, legally you must report payments made you as income – even if it’s only pennies for the year. This income should be reported on a Schedule C, (contact me for free estimation, and help with this).
3. Expenses related to your self-employment income, or blogging are deductible so long as they are ‘ordinary and necessary’ and only then as they are relative to your line of work. In other words, if you mix business and personal, you must be able to separate out the business use in order to claim a deduction. Examples of potentially deductible expenses for bloggers include internet connections, hosting fees, cell phone connections, back-up tapes and computer software. For example also photographers, they may expense cameras, film, printing fees, etc.
4. You can claim a home office deduction for business which means that you can deduct a percentage of utilities, insurance, and even mortgage interest or rent. However, the part of your home or apartment must be used exclusively and regularly for business. Be smart. No matter how much my brother wanted to claim his recliner as his place of business for his NBA reports, it didn’t count. The space must be exclusively work space and it must be your actual office and not just at your home for personal every-day use.
5. Advertising your business is also deductible! Networking conventions, and other advertising costs are 100% valid. Consider the cost of printing business cards and letterheads or advertising your business or blog when calculating your expenses.
6. If you’re searching for a new campaign or contract, that might also be deductible. Job search expenses may be deductible so long as they are in the same line of work as you normally do (you can’t decide to switch from lawyer to blogger and count those expenses). If you qualify for such expenses, you may be able to deduct expenses related to resumes (including postage), employment agency fees and reasonable travel expenses, etc.
7. There is a difference in IRS law if what you do is a business or you consider it a hobby. A business is considered a serious pursuit; a hobby is something that you do for fun. If the IRS believes that your blogging (for example) is a hobby and not a business, you may only deduct expenses to the amount that you have income. In other words, if your blogging income was $100 for the year, you can only deduct $100 of expenses. If you’re operating as a bona fide business, you can carry forward expenses that are in excess of your income (that’s a good thing). Generally, to be considered a business, you need to hold yourself out as a business and act with the expectation of making a profit (you don’t have to actually make a profit every year, just expect to make a profit). Contact me to turn your hobby into business! I have helped many small businesses flourish! Email me here, to find out how we can get you started!
Bottom line is sometimes you have so much fun doing your self-employment gigs while making money too! So there’s nothing wrong with being a self-employed hobbyist – it makes the reporting easy. But if you’re planning to do what you do (for example: photographer, model, social media influencer, blog, etc) for a living, then act like it. Be business-like. You’ll impress those in the blogging community and make the IRS happy at the same time. Contact me directly to find out more on how to get yourself organized and established as a business.
Like any good accountant, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation. If you have a question, ask me directly via email- firstname.lastname@example.org | Visit www.ezetaxservice.com also for more information about my business and what I do!
Good luck with tax season everyone!! I hope these tips were helpful!!