5 Common Tax Mistakes Bloggers Make (That Could Cost You!)
Bloggers have to learn a lot as they go. I don’t know about you, but when I started my first blog I just basically started posting. I didn’t know anything about formatting, SEO, social media. Like most bloggers, I had to learn as I went along.
Something I love about blogging is that I can make mistakes. Mistakes are inevitable, but I can then go back and fix them. I can learn and improve.
One area you don’t want to be making mistakes? Your taxes. Little mistakes can lead to big penalties.
I’m not trying to freak you out. It’s just that there is a lot of ‘tax tips’ that circulate that just aren’t right. I want to help try to clear the confusion. Here are 5 common tax mistakes bloggers make.
5 Common Tax Mistakes Bloggers Make
Blogging is still relatively new in terms of being a money-making operation. Yes, to you and me it feels like it has been around for some time now. But in terms of tax law, it is still very new. As such, there is a lot of learning as we go, both for bloggers and tax professionals.
These are common misconceptions I have seen during my time as both a blogger and a bookkeeper. But before you make any tax decisions you need to speak to your tax professional.
Thinking You Need an LLC to be a Business
This is just not true. You do not need to operate as an LLC to be considered a business. LLC stands for Limited Liability Company. It is a form of legal protection, and it is not one you need to operate as a business. (Questions about LLCs? Check this out: LLC FAQ for Bloggers)
There are several business entities you can choose from, and you can always operate as a sole proprietor. Having an LLC might be beneficial to your small business, but it is not a necessity to do business.
Learn more about your entity choices: Business Entities for Bloggers
Thinking You Can Automatically Take a Home Office Deduction
A big perk of blogging is that you can do it at home. This makes it an amazing option as a side business and for moms looking for a way to make money while still taking care of their kids.
If you work at home, you get to take a home office deduction, right?
Home office deductions are definitely something bloggers should consider. It is a deduction that can be overlooked. But simply working at home doesn’t qualify you for it.
Your home office needs to be a space that is used regularly and exclusively. The size of your office doesn’t matter, but it does need to be a space used just for your at home business. The short version is if you are blogging at the kitchen table or on the couch, you don’t have a home office.
Learn if your workspace qualifies: Home Office Deductions for Bloggers
Forgetting Free Stuff Is Income
A favorite perk of bloggers is the free stuff you can potentially get. Who doesn’t like getting things for free? (The IRS of course 😉 )
Here is a common scenario. A company sends you a product. You try it out and review it on your blog or talk about it on social media in exchange. It’s great! The company gets some advertisement and you get a free product.
What you just participated in is a barter transaction. Goods were exchanged for a service. That means you generated income. And that income needs to be reported.
Like all things with taxes, there are some ‘it depends’ situations when it comes to barter transactions. But there is one thing I would definitely ask yourself any time you are offered a free product in exchange for a review or mention. Is this something you are willing to pay income taxes on?
Barter transactions are a great thing to ask your tax professional about. You can also learn more here: Barter Transactions: How Bloggers Pay Taxes on Free Stuff.
Forgetting To Pay Self Employment Taxes
A lot of people dream of being their own boss. There are a lot of perks. But being your own boss doesn’t mean you get out of taxes. Yep, if you are running your blog as a business, you are a small business owner.
This means paying self-employment taxes.
When you have a more traditional job your employer pays half of your Social Security and Medicare Tax. Bloggers are self-employed, which means you get to pay both halves of these taxes. As your blog grows and you make more money, this means you need to be making quarterly tax estimates as well.
If blogging is your first time venturing into the land of the self-employed, this can be a bit confusing. This is an excellent time to talk to your tax professional. She can help walk you through the process and figure out what you need to pay when.
Learn more about this: Self-Employment Taxes for Bloggers
Not Keeping Adequate Records
When you are just starting your blog it can be confusing to know what records you need to keep. What is a business expense? What counts as reportable income? For a lot of people, the blogging part is much easier than the business side.
My rule? When in doubt, write it down. More than that, write it down when it happens. Yes, it can feel like an extra step in a busy day, but trust me on this one.
When you have a blog expense, document it right away. Receipts are the most helpful thing to have. (No, a line charge on your credit card statement might not be enough to prove a purchase was for your business.) You can’t deduct an expense you have forgotten about. (Get the most common deductions: Tax Deductions for Bloggers)
The same holds true for income. Document when you get paid. Bloggers can have a lot of revenue streams going. Ad revenue, affiliate sales, products. It sounds crazy to think you can forget you made money, but I’ve seen it happen.
The IRS doesn’t forget you made money.
So take the time again to document this sort of thing when it happens.
This is the simplest system to organize your blog bookkeeping, and it is actually what I recommend for my own clients: Blog Bookkeeping Organization.
Tax Knowledge is Power
Blogging can be a great way to earn money, but just because it is so simple to get started doesn’t mean you can ignore the basics of your business. If you want to be successful as a blogger that means learning about the tax side.
As with all new business ventures, talk to your tax professional about what you need to know and do as a money making blogger.
Here are more posts you might like: