02.09.06

It’s tax time!

Posted in Blogging for Profit at 12:43 pm by admin

For all of you out there with AdSense on your site, I’m talking to you!

Unfortunately, Google AdSense income is taxable income. Remember, Google takes income from clients who pay money for their ads to be run through AdSense. In order to reduce their overall income (and thus reduce their taxes) they will declare payouts to you as an expense. To Google, you are an independent contractor, being paid via 1099-MISC and this relationship will be reported to the IRS.

If you reside in the United States and made over $600 in one year through Google AdSense, Google has to send you a 1099-MISC form outlining exactly how much has been paid to you over the year. If your income was less than this, you may or may not receive the form but, you still have to report your income!

Remember: Taxable income = Total income - Related expenses

It is so easy to reduce your AdSense income, or even report a loss in your submission, you just need a good record of all your expenses.

Reducing your AdSense Taxes:

The very first question you should ask yourself is: “Is my website for business or hobby purposes?”. The reason is if your website is for hobby purposes, there is a limit to how many expenses you may record for your site. In short, you are not allowed to declare a loss. If the site is for business purposes however, you are allowed to record a loss. This is what you want!

Reference: IRS: Is it a Business or a Hobby?

If you have determined that you are a business or are going to declare that you are a business, there is a good chance that you will be declaring as a Sole Proprietorship. You should note that if you are declaring as a sole proprietorship, then by definition you are both the employer and employee of that business. You are self-employed. If your net earnings were more than $400, you must pay self-employment tax on that income.

Reference: IRS: Sole Proprietorship, IRS: Tax Guide for Small Businesses

As a self-employed individual, you will now have expenses related to your business which you may declare. These include expenses such as domain registration and website hosting charges. Do you travel for your website to do research for articles, etc? You may also be able to record this as an expense, as well as others such as rented space in your home to run your business. Some suggestions for expenses are below:

• Domain Name Registration
• Web Hosting and Maintenance charges
• Advertising For Your Site (Adwords, Overture, Magazine, Newspaper)
• Home-Office Deductions:
• Portion of rent or mortgage
• Portion of internet access
• Portion of telephone bill
• Portion of cellular phone bill
• Portion of other utilities
• Equipment
• Computer purchases & upgrades
• Digital Cameras, Printers, Scanners, Fax Machines
• Office Supplies
• Software
• Mileage on your vehicle used for business purposes
• Relivant Magazine or Newsletter Subscriptions
• Post-Office Box Rental
• Even Tax-Preparation Expenses!

As you can see, the expenses you can declare are only limited to your creativity! Remember that I am not a tax professional, nor do I claim to be one, nor will I be filing taxes with the IRS as I am in Canada. I am just writing about my own experiences and planning ahead for my own taxes filed to the CRA.

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