Disclaimer: The information provided in this post is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual and business needs.
The Business of Blogging- A Start Up Tax Guide
Getting into the blogging hemisphere is hard enough in itself. You have to learn how to build a brand, properly market yourself, handle sales, do your own research, web design, photography, and so much more. However, there’s the less often discussed, but no less important part of running your blog, and that’s the financial back end. How do you handle your finances? What are your reporting obligations? Where do you even start? If you’ve made the decision to start your own blogging business, then this is the essential tax guide to help get you started.
I just started my blog, should I incorporate my business?
The short answer is no. Opening and maintaining a corporation is expensive. You have to have proper bookkeeping and tax preparation completed every year and it is most likely that you will be making minimal to no income for some time. Maybe years. So the cost benefit is just not there, especially since there are cheaper alternatives. Until you are making over $50,000 a year, it’s just not worth it. Once you hit that $50K mark, an S-Corp is the right way to go.
What should I do instead?
Utilize your individual income tax return. As a sole proprietor, you should report your self-employed earned income and expenses on the Schedule C form. It’s much cheaper and in the startup phase gives you a better return. If you have no other income, the losses from your expenses will continue to carry forward until you start seeing a profit. Once you start seeing a profit, that money will be expensed against your income until all of the losses have been recognized. If you have other income, a certain percentage of your losses will be recognized immediately while others will be carried forward.
How do I account for my expenses?
It’s very important to be organized, so make sure you keep all of your receipts and expenses in one place. Use either one credit card or open a separate bank account and charge everything there. At the end of the year, total your expenses by category.
What kind of expenses can I write off?
There are several categories that are generally deductible for everyone like a computer, phone, or photography equipment. Any single purchase under $2,500 does not have to be depreciated. Any item over $2,500 must be listed as an asset but does not have to be depreciated and you can claim the entire expense in the same year under Section 179. You’re also probably working on the blog from home, so if you pay your own rent and have dedicated a portion of your home to your office space, you can write that off as well.
Are there any specific expenses to my niche that I should know about?
This very much depends on your niche. If you’re a travel blogger, you can write off things like airfare, hotel stays, travel magazines, car rentals, etc.. If you’re a fashion blogger, you can write off clothes, fashion magazines, bags, accessories, etc.. You just have to be aware of your industry. If your success relies on your appearance, then you may also include personal maintenance expenses like hair, makeup, and wardrobe. If you’re unsure, ask yourself “if I wasn’t working on this blog, would I still NEED this item?” If the answer is no, then you can expense it!
I can deduct expenses even though I haven’t made any money?
Yes. The IRS recognizes that a new business takes time to develop and requires financial investment before it starts to see results. However, they are also very diligent about differentiating a hobby from a business. If you have a passion for fashion and love posting pictures of your fashion style, that’s great, but not enough to be justified as a business, so those expenses are not tax deductible. In order to prove that you are actually running a business, you have to prove that you have made a continuous and strong effort to make sales. That means pitching to brands, clients, contacting people, networking, and everything in between. Do you have a website? Are you advertising yourself in some way? Are you taking steps towards financial gain? If not, your expenses will be disallowed.
How much should I invest in my new blog?
There is no exact dollar amount that you should invest. It all depends on your budget. The rule of thumb is not to invest more than you are comfortable with losing. That means you should not put yourself in a position where you are strapped for cash. Be reasonable and start out slow, buy only what you need at first and look for ways to save on cost. If you’re a fashion blogger, try to rent items or borrow from friends and family instead of purchasing them. If you’re a fitness guru, try to shoot your content in the places you already work out instead of buying new equipment for your home.
As your business continues to grow your financial reporting and tax obligations will of course change. It is strongly encouraged to work with a proper accountant instead of trying to figure it out on your own. A trained professional will save you more money than the amount you are saving by not hiring one.