With the year coming to a close, those bloggers who earn revenue from their sites may want to think about tax implications. Brian Borawski, who writes the business pieces for the Hardball Times as well as his own blog (Tigerblog), is an accountant by day. Brian generously agreed to answer some questions related to blogging income and taxes.
Before we get started, it is important to emphasize the following:
The topics in this column are for informational purposes only. It is imperative that you consult with your tax advisor with regard to your unique situation before implementing anything found in this column.
BaseBlogging: What income do bloggers have to report?
Brian: Technically, anything they receive should be considered income for tax purposes, no matter how small. Whether it’s $10 or $10,000, the Internal Revenue Service (IRS) considers it income and it should be reported on your tax return.
BaseBlogging: What are the business structures that bloggers should consider?
Brian:The easiest structure is a sole proprietorship, and in this event they basically do nothing. All of their income and expenses are reported on Schedule C of their Form 1040. This is probably the recommended version if the blogger is making a small amount of money from their blog. Once you get into the thousands of dollars and especially if you have a network or several people writing for you, it might be time to put something a little more formal into place.
One option is a Limited Liability Company (LLC) and these have become pretty popular. They’re less administratively burdensome then a corporation (which we’ll get too) and they’re usually easier to set up. A single member LLC would be set up if there’s only a single/owner member while a multi-member LLC would be set up if there’s more then one owner.
A single member LLC is taxed the same as if you were a sole proprietorship and all of the income and deductions are reported on Schedule C of your Form 1040. A multi-member LLC is required to file the same return that partnership would, Form 1065, with the income and expenses eventually “flowing” to Schedule E of their Form 1040.
Another option would be to incorporate. While there are distinct benefits to incorporating, this is the most administratively burdensome of available entities. This form of entity would be preferred if you have a large network of writers that write, but only a small number of owners. One of the burdens of a corporation is that the owners have to be on the payroll, so if you have a corporation owned by one person, they’d have to go through the process of keeping payroll records and filing payroll tax returns with the IRS and their respective state. Another burden is that the corporation needs a formal board of directors, which requires board meetings and minutes from those meetings. Some states let you have a one person (usually the owner) board, so that makes it somewhat easier.
There are two types of corporations as well. The S Corporation is pretty popular because you avoid double taxation on the income of the corporation because it doesn’t pay an entity level tax. So similar to a partnership, the income gets recorded on your Form 1040 and is taxed at your own marginal tax rate. However, to qualify as an S Corporation, you have to make a proper and timely election.
The C Corporation has some distinct benefits as well, although it has its own pitfalls. A C Corporation pays an entity level tax so the corporation has to actually cut a check to the IRS (assuming it makes money). One nice thing is the first $50,000 in net income is taxes at 15%, so if you’re in the 25% tax bracket on your Form 1040, there’s some savings there. The problem is, if you pull the money out as a dividend, you’re tax again so this might no make as much sense if you’re basically going to funnel all of the money from your corporation into your personal finances.
The other thing to keep in mind is to respect the entity. If you have an LLC or a corporation, you’ll need to set up a separate bank account and the business’ funds should not be commingled with your personal funds.
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