GREAT ADAPTATIONS

This is a guest post from Gina Gwozdz, CPA.

If you earn income from your website, your blog and/or your writing and you are not in collaboration with others, then for tax purposes, unless you incorporated you are a sole proprietors. The taxes for website owners, bloggers and writers, in this situation, is the same.

• If your website, blog and/or writing is a sideline business, you must have a profit motive in order to take advantage of the sole proprietor deductions. If these activities are writing for any other purpose then your activity is considered a hobby and the rules in this article do not pertain to you (but your income must still be reported).
• If this activity is not a hobby, then your income and expenses belong on Schedule C, “Profit or Loss from Business”. Many writers still make the mistake of recording their royalties on Schedule E, “Rents and Royalties”. The royalties the IRS is looking for on Schedule E include oil & gas royalties and royalties from an estate, not book royalties.
• All income you receive from your activity is considered gross income (includable on Sch. C). This would include advertising revenue, affiliate revenue, first NASR, royalties and royalty advances.
• All “ordinary and necessary” business expenses that you incur while trying to earn a profit from your activity are deductible. Examples of these expenses include office and computer supplies, research expenses, subscriptions, business use of telephone, internet, car, advertising and potentially your home office. In general, an expense is considered “ordinary” if other profitable entrepreneurs incur the same expense. An expense is considered “necessary” if it is necessary to make a profit.
• In addition to business expenses you are also required to capitalize any item that you are able to use for more than one year (desk, computer, printer, etc.). Most of these items you will be able to depreciate in the year of purchase through Section 179 expense, but there are exceptions and limitations.
• As a profitable business you are eligible to set up many tax savings plans, such as retirement plans and medical expense plans.
• Website owners, bloggers and writers who are in the business of writing to make a profit will owe self-employment taxes, in addition to Federal (and possibly state) taxes on their net income as computed on Schedule C.
• When you are a successful sole proprietor and have a net income on Schedule C, you may be responsible for remitting quarterly estimated tax payments. If you fail to make these payments you may have to pay a penalty when you file your tax return.
• If you sell to other countries and collect foreign royalties the foreign country may send you a request for certification that you file a U.S. tax return. If the IRS certifies that you file a U.S. tax return and we have a treaty with that country, they won’t withhold as much foreign tax from their payments to you.

Gina L. Gwozdz is a CPA who specializes in minimizing taxes by helping to educate taxpayer. Visit her blog for more Tax Tips articles (http://GLGcpa.com/blog)