Our Ask Performancing feature for this week is about filing taxes. The question was posted on the Hive by none other than my fellow contributor Jeff Chandler.
During the year, I received payments through paypal for contractual work for one site while receiving more payments from another site for contractual work. However, I am beginning to wonder how I am going to pay taxes on the money I am making through writing.
My question is, how should I file taxes? Should I report the money that I have received through paypal from the various sites I have written for as income on my income tax filing or should I file a 1099 e on my own behalf? Or, should I not file anything and considering the payments through paypal as under the table? I’ve been told by others that I have asked that the money that goes from paypal to my account which is not taxes will eventually come back to haunt me if I don’t report it.
The short answer here is that it’s best that one consult with an accountant or the tax authorities in your country, state or locality. The problem with running a business that’s not necessarily limited by geographic boundaries (like a blog network, and like writing for blogs) is that it might be difficult to determine tax jurisdiction or responsibility. And what applies to one person might not necessarily be applicable to the other.
For instance, a blog network may be a registered corporation in country A. But most of its staffers and writers reside in countries B, C and D. And most of the advertisers or sponsors come from country X. That’s a lot of money floating around in cyberspace, and who knows which taxman you should be paying money to.
I’m an economist, but taxation wasn’t exactly my best subject back in college and grad school. But here are a few suggestions from our fellow Hive members.
Best way is to setup a ltd company and work through that. Second best option is to skip taxes, but obviously that’s not a serious recommendation.
While Ahmed’s “second best option” isn’t exactly a serious recommendation, I would say that most bloggers earning money on the side (as a hobby, or just to pay the utility and hosting bills) probably take this option.
HART, who is also an accountant from Canada says:
… I’m almost sure that you would NEVER file your own 1099 form – Employers send these out to subconctractors (never employees) and is just a record of what they pay.
If you get one – it’s easier, but I don’t think they do that for bloggers/writers. Here in Canada only certain industries are included in the types of subcontractors who receive our own version of this form (gravel companies, trucking industry, etc).
Just collect all your data from Paypal .. gross revenues received less paypal fees, maybe payouts for subscriptions, promotion (donations no official receipts), software purchases, etc etc. And do the same for your offline.
If you live with your parents, you probably don’t have any business use of residence – but if you have your own home, you would keep track of all 100% home type of expenses (heat, water, electricity, property taxes, mortgage interest, maintenance affecting whole house e..g. furnace repairs, etc) and can take a pro-rata share of your office in your home to your total home space.
If you bought a computer during the year, I would ‘capitalize that’ and I think there are some us tax benefits on new purchases (but not sure). If you already had a computer at the beginning of year, estimate its fair market value and set up something.
For other expenses – look at schedule C and your IRS site forms related self-employment.
And, contact a CPA if you are preparing your taxes yourself or, have some cash discounting site prepare your taxes (like an HR Block etc) at least once or for a consultation.
Based on what’s been discussed so far, the solutions here involve either setting up a corporation (because LLCs usually have more allowed deductibles than individual taxpayers, and shield the invidivual from liability), or file as a freelancer. But then there might be nuances to this. What type of LLC can you set up? What kind of freelance activity should you declare? What would best minimize your tax burden, while still paying what is fair?
Aside from sending your receipts and figures to your accountant for computing your tax dues, there are also companies that specialize in handling these burdensome matters for freelancers and contractors. In the UK, for instance, umbrella services can act as your “employer” and your work would essentially be as a “contractor.”
Who said problogging was easy? Writing and marketing is hard enough. But thinking of tax matters would surely cause a bigger headache. If you have a good, detailed solution, I’d love to hear about it.