Is my blog a business or a hobby? How to decide come tax time.
In the blogging world, there is a lot of talk about monetization. Everyone likes making money. Some people blog with the express interest in making a profit, while others view it as a happy bonus if they make some extra cash.
Does how you run your blog matter? Well on a blog level no, it is up to you. But if you are making money blogging, then come tax time yes. It does matter.
Hobbies and businesses have different tax requirements. So the question is then: Is my blog a business or a hobby?
Is My Blog a Business or a Hobby?
The short answer to this question is: What do you think you are? Do you see yourself as just something you are doing for fun and as an outlet?
Or are you looking to turn a profit and see yourself as an online business?
Yes, how you see your blog is important. Just because you make a little bit of money doesn’t mean that you are running a business. Hobbies can make money. Someone who knits could sell something they made to a friend, but if they aren’t looking to make a consistent profit off of their knitting that could be considered hobby income.
Conversely not making any money doesn’t mean you aren’t in the blogging business. Most businesses take a couple of years to turn a profit. Not making a profit, especially when you are just getting started, doesn’t disqualify you from taking business deductions alone.
What if you aren’t sure what you are yet? Fortunately, the IRS does give some guidelines on how to separate the blog hobbyists from the blog business owners.
Are You a Business?
There are several questions to ask yourself to determine if you are a business or not, but they boil down to a few main ideas:
- Are you actively trying to make a profit?
- Do you depend on the activity as a source of income for your family?
- If you have losses, are they in the start-up phase? Or are they from something you couldn’t control?
- Are you working to improve profitability? Are you trying to make more money?
- Has your activity made money in the past?
- If you have made money off of your activity in 3 of the past 5 years (including the current year) the IRS generally assumes you are a for-profit enterprise.
Why Should I Care if My Blog is a Business or a Hobby?
Why does this matter? Who cares if you are just blogging as a hobby or if you are trying to make it a business. It matters for everyone’s tax favorite: Deductions.
When it comes to filing taxes the bloggers who are a hobby have different deduction than those who file as a business.
If you are a hobby you can only take deductions up to the amount you made in profit. If we go back to our knitting example that means if you sell something you made you can take deductions (like yarn supplies) up to the amount of money you made. You can’t deduct all the yarn you bought for the whole year.
If you are a business you can deduct more than the amount you made. (Hobby income and business income are also reported on different forms.)
How Do I Prove My Blog is a Business?
I think we all know that a lot of business don’t turn a profit right away. And you can happily blog away, full time or part time, without ever making a cent or even trying to.
So how do you prove you are a business? The short answer is you act like one.
How do you act like a business? It’s more than just writing a blog post, sending out a newsletter, or printing up business cards with your email address. There are a few things you can do.
- Have a business plan or a plan of action for how to make a profit.
- Operate as a business with things like maintaining proper record keeping, having appropriate government registrations as needed, and having things like business cards, websites, social media postings, etc. (This is where my easy blog bookkeeping organization system comes in handy—> Basic Blog Bookkeeping Organization)
- Form a LLC or corporation. (Note: You do not need to do this to be a business, especially as a blogger. It is just an option.)
- Have separate bank account if necessary.
- Spend the time and document that time spent working to make a profit. Document progress towards your profitability goals.
What it really comes down to is whether you intend to make a profit and if you are actively working towards making a profit. Like I said, if you think you are a business and are acting like you, you are a business.
Within different industries, you will find hobbyists and businesses. With our knitting example there are people who knit for fun and occasionally sell a piece, and then there are those who knit hard and sell a ton.
Blogging is no different. Some people blog for enjoyment and every so often they make a little money. Some people set a goal to make a profit and then work towards that goal.
It’s Up To You
I can’t tell you if you are a business or a hobby, and I am not trying to do that here. These are just some tools to find out where your blog falls. Like all things having to do with accounting, you need to talk to your tax professional to decide what is best for you and your blog.
But if you want to be considered a business you need to be documenting how you are running your operation and be actively working to make money. You have to put in the work of a business to be considered a business.
IRS Business or Hobby Fact Sheet
IRS Tax Tips for Hobbies That Earn Income
Turbo Tax Hobby or Business Fact Sheet
Thanks for this great information. I have just started my blog with the intent to make money. Seems I’m spending more money and haven’t made any. Would I be able to write off my home office space? Or things like my computer that I purchased for blogging. Or hosting, tailwind or convert-kit services?
Yes! There are a lot of deductions you can take as a blogger. This post, Tax deductions for bloggers, has the list of most things you can deduct. Things like hosting, tailwind, email services, etc that are strictly for blogging can be written off. It is a good idea to talk to your tax professional about your computer if you use it for personal reasons too. And yes, you can take a home office deduction if you qualify. Here is where you can find more info on that: Home Office Deductions for Bloggers.
It’s great you are being so proactive about your business!