Do You Earn Income From Blogging? Don’t Make These 5 Tax Mistakes
Are you making money with your blog? Whether your blog earns income from advertisers, sales, or services, your earnings are subject to state and federal income tax. Every dollar your blog earns needs to be accounted for and if you fail to pay proper taxes, you’ll be subject to fines and penalties. The IRS doesn’t care if your failure to pay is the result of a mistake – you’re still responsible.
If you’re concerned about meeting your tax obligations as a blogger, these are the mistakes you want to avoid.
1. Not paying self-employment taxes
The biggest misconception about self-employment is that you need to be running an established business to be considered self-employed. The reality is that anyone earning income from any source outside of a W2 job is considered self-employed.
All self-employed individuals are required to pay self-employment taxes. Self-employment taxes are the Social Security and Medicare taxes that employers normally pay 50% for their employees. When you’re self-employed, you are responsible for paying 100% of those taxes.
If you’re not familiar with paying self-employment taxes, download the self-employed tax guide from hurdlr.com to learn exactly what taxes you’re responsible for paying and how to pay on time. Self-employment taxes are due on a quarterly basis, so it’s important to be familiar with the process.
2. Not reporting your income
The biggest mistake you could make is not reporting your income. Sometimes the IRS will have a record that you’ve earned money even when you don’t report your income. For example, if you’ve earned $600 or more from any one source, that source is reporting your income as their expense on a 1099 form – the same 1099 you get around January. This means the IRS knows exactly how much they paid you and will be expecting you to report that income in April.
Be diligent and report all of your income to avoid getting caught and fined for not paying your taxes. If your blog is earning a considerable amount of money, you might get into serious trouble that includes doing jail time for tax evasion.
3. Not paying self-employment tax when you don’t owe federal income tax
If you aren’t obligated to pay state and federal income tax, you still need to pay self-employment tax on your income. Income tax is different from self-employment tax. While the government allows certain individuals to have no income tax liability, that’s not true for self-employment tax.
No matter how little income you earn from your blog, set aside the appropriate percentage to cover self-employment taxes.
4. Justifying expenses because they’re deductible
Many of your blogging expenses are deductible, but that doesn’t mean you need to spend money. Sometimes spending money on deductible expenses is more costly. For example, say your tax rate is 20% and you spend $100 on a tax-deductible piece of equipment. You’ll save $20 on your taxes. However, if you don’t really need that piece of equipment, you’ve wasted the money. By paying taxes on that $100, you would have been left with $80 instead of $0.
Unless you really need something, it’s better to pay tax on your income and stash the rest in your bank account.
5. Claiming the home office deduction if you don’t meet the requirements
The home office deduction is a source of major confusion for many people. It’s almost impossible to get a concrete, definitive answer on what qualifies as a home office because the guidelines are somewhat vague. However, there are clear guidelines on a home office that doesn’t qualify as a deduction:
- If you use your home office for anything other than work, including checking personal email
- Your office has no walls or a door (this is debatable, but the idea is that if your office has no walls or a door, it might not be used solely for business)
- You need to pass through your office to get to another room in the house
What qualifies for the home office deduction will vary between tax professionals and some might advise you not to take the deduction. Err on the side of caution because it’s not worth an audit.
Don’t fall behind on your taxes
Avoiding these mistakes will help you stay on top of your taxes. Don’t fall behind because it will only cause more stress. Develop a routine for saving a portion of your income so you can always pay your taxes on time.