As a general rule (I’m no longer a tax professional, but I once was. Still, you should consult a tax professional because every situation is different), all self-employed income is taxable. If your blog is making money, it’s your business, therefore you are self-employed. Simple as that. Anyone who pays you for services, i.e. blog posts, will send you a 1099 with the total amount, if it’s over $600. There are ways around this though. For example, if they use PayPal or another third party to send payments to you, then they are responsible for sending you the tax form. However, you must meet the threshold of $20,000 in gross payment volume AND over 200 separate payments in a calendar year. I don’t know about you, but I’m far from reaching that. This means that I don’t receive a 1099 from anyone, except one company who pays me via direct deposit. They did send me a 1099.
Because the odds are that you won’t receive tax forms showing the income you’ve made from your blog, you need to keep track of it yourself. This is fairly simple. Start a spreadsheet or print one out if you prefer paper version. I prefer paper versions, so I printed out these. Note the date, who the income comes from, what it’s for, and when you receive payment.
I have a binder that I keep all information in. When I do a sponsored post, I print out the information and instructions, whether it be from a website or email, and include that in my binder. If there are any supplies or products that need to be purchased for that post, I then staple the receipt to the instructions. This allows me to have easy access to it and to be able to look back at it later if need be. I also keep spreadsheets of any expenses or items I receive as payment for posts.
Taxes will need to be paid on any income earned. Self employment taxes come out to more than payroll taxes, since you are also paying the amount your employer would be.
The self-employed person’s FICA tax rate for 2015 consists of the following (source):
- the employee’s portion of the Social Security tax, which is 6.2% of the first $118,500 of net income
- the employer’s portion of the Social Security tax, which is 6.2% of the first $118,500 of net income
- the employee’s portion of the Medicare tax, which is 1.45% of all net income (no cap or limit on net income)
- the employer’s portion of the Medicare tax, which is 1.45% of all net income (no cap or limit on net income)
There are ways to lower the amount of tax you owe though. Any expenses are deducted from your income, lowering the amount that is taxed. If you end up with negative income, it is deducted from your general income (basically your W-2 wages). You do need to consult a tax professional to be sure of what expenses you can deduct, but some are obvious. Start a spreadsheet or use a printable to keep track of any and all expenses. You’ll thank yourself come tax time.
Blogging deductions could include:
Ads (think Facebook, promoting pins, any ads you placed on other sites)
Computers or other Electronics
Supplies for Sponsored Posts (this is why I attach all these receipts to the info on the post they were for, easier than throwing it in a shoe box)
Conference Fees and Expenses
Giveaway Items (if you paid for them out of pocket)
Postage (to mail those giveaway items of course)
Any Courses Directly Relate
The possibility is there for many more, depending on your blog and what you do.
It may be that you do posts in exchange for products. These are also taxable. Keep track of the value of all products given to you as well.
If you earn enough, you’ll be liable to pay quarterly taxes. With payroll taxes, you pay as you go, and the IRS expects you to do that with any other income as well. Based on what you earned in 2015, a tax professional can help you estimate for 2016. There are penalties for underpayment, so make sure you keep on top of this. According to the IRS, in most cases, you must pay estimated tax for 2016 if both of the following apply:
1. You expect to owe at least $1,000 in tax for 2016, after subtracting your withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:
a. 90% of the tax to be shown on your 2016 tax return, or
b. 100% of the tax shown on your 2015 tax return. Your 2015 tax return must cover all 12 months.
The easiest way to take care of all this is to keep on top of it throughout the year, stay organized, and find yourself a CPA.