Ask Performancing: Filing Taxes

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.

Ahmed says:

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.

5 thoughts on “Ask Performancing: Filing Taxes

  1. Jeff:

    I am in the same boat as you, having being a “contractor” with TalkShoe; I have to figure out this legal mumbo-gumbo on how much I need to pay on Taxes for what I have made since being hired back in May.

    I am going to be talking with my Parents’ Tax Professional about this in January.

    Josh Budde

  2. You are right about the requirement for making quarterly payments but this may not be necessary if you only have received a few thousand dollars in blogging income and hold a full time job that is your primary source of income. I have a CPA but havent practiced in years so its best to ask an expect who knows the latest rules.

  3. Jeff:

    I don’t want to scare you, but the IRS made a new provision several years ago that requires any “self-employed” person (even one working part time) to pay estimated taxes up front. Just as an employer would take a certain percentage of your paycheck and send to the IRS, you are required to estimate your income and pay it quarterly, although the quarterly dates are somewhat arbitrary.

    If you don’t pay these sums on time, or you underpay them, you may find yourself paying a fine for not paying your estimated taxes.

    In addition, the IRS may single you out to ensure you pay estimated taxes for the following year. If you have ever signed up for payments from an online ad broker (Google, Amazon, etc.) the application you submit usually has a check box that says something about the “The IRS has not informed me that I am subject to estimated tax withholding.” I don’t know what the IRS does to enforce this, but if you are on the list, any company making payments to you is required to withhold part of the cash due you and send it to the IRS. The way to stay off the list is to pay your estimated taxes on time.

    I am not an accountant so take this for what is worth. I know people who have had to pay fines on even small amounts. The good news is that royalty income, which you can make a case includes blog income, is hard to predict so you may not have to pay it in equal quarters. You do have to pay before the end of the last quarter of the year, however. Fortunately, the last quarter of the year usually extends into January. I believe I had until January 15, 2008 to pay my last quarterly payment for 2007.

    Because I’m not an accountant, don’t take any of this as advice. Find someone with real accountant credentials who can explain it to you. You shouldn’t have to spend $100 hour. There are many small business groups who will advise you for free, and you should be able to find a tax professional to handle your entire 2008 tax form for well under $100 unless you are in some complex income situation.

    Take this seriously. I know the IRS does.

    — Tom

    Tom Bonner is the author of the Sony Alpha DSLR-A300/A350 Digital Field Guide from Wiley press. He blogs regularly at

  4. As for those with questions about the internationalization of blogging, I treat every client as though they entered my office in Canada, and purchased my services, and since Paypal or my bank does all of the currency translations, I, charge in US dollars, but save and pay taxes in Canadian dollars. And 30% sounds about right Jeff. I put aside around 35% per pay to make sure I can pay not only Income Tax, but also GST. :$

  5. I almost went through with my appointment with a certified CPA but that $100.00 an hour he was going to charge me made me drop out at the last second. What I have done thus far is added up my total amount of income I’ve made through blogging and figured out what 30% of that value is and have prepared myself to at least be able to pay that amount. That 30% being the amount that should be with held from any untaxed income to pay taxes. Here in the states, H and R block does not open their offices until January 2nd so until then, I will be in tax limbo and working for free because I screwed up and now I am trying to save every penny to insure I have enough to pay whatever tax I might owe. What a pain in the ass Christmas.

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