Tax Tips | Is my blog a Business or Hobby?

It’s that time of year again… tax season.  Some people dread it, others are hopeful for a generous refund.  Whatever boat you’re in, if you’re a blogger I’d encourage you to think twice about how you file your taxes this year.

I’m a tax accountant by day… so can we just have a little blogger heart to heart here and discuss your taxes?

According to the Internal Revenue Code, all income is taxable unless it is specifically exempted.  This means that technically, if you pick up a random twenty in the grocery store parking lot you need to report that as income on your tax return.  And of course any money you receive from your blog is certainly includible as well.

But, there are two different ways you can classify your blogging income that will affect the rest of your taxes.  You can report your earnings as coming from either a hobby or a business.  Do you know which your blog is for tax purposes?

WHY DOES IT MATTER?

If your blog is classified as a business, you can deduct the expenses you incurred (web hosting, camera equipment, possibly even a part of your home’s utilities) against your income to lower your tax bill.  And isn’t that what everyone wants?  A lower tax bill.

If your blog is classified as a hobby according to the IRS, you also can deduct ordinary and necessary hobby expenses, BUT are limited and can only be taken up to the amount you made in hobby income.  In other words, you can take more deductions as a business than as a hobby.

SO IS YOUR BLOG A HOBBY OR BUSINESS?

These are the considerations of the IRS in determining whether or not you operate a business or a hobby.

  • Does the time and effort put into your blog indicate an intention to make a profit?
  • Do you depend on income from the activity?
  • If there are losses, are they due to circumstances beyond your control or did they occur in the ‘start-up phase’ of your blog?
  • Have you changed methods of operation to improve profitability?
  • Do you (or people advising you) have the knowledge needed to carry on the activity as a successful business?
  • Have you made a profit in similar activities in the past?
  • Does the activity make a profit in some years?
  • Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?
  • If you’ve made a profit during at least 3 of the last 5 years (including the current year), the IRS assumes your blog is a business.  

Ok, so you’ve read through the list, some of the points describe you, but some don’t.  Now what?  How will you determine what to classify your blogging activity as?

There is one ultimate question that it all boils down to in the eyes of the IRS…

Are you trying to make a profit?

If the answer to that question is yes (and a true yes that can be supported) then your blog can be classified as a business.  It doesn’t matter if you’ve had losses for its entire existence.  As long as you are running your blog in such a way that your goal is to be profitable, you can classify your blog as a business.

That’s good news, isn’t it?  I’m very excited to be reporting Mrs. Fancee blog earnings as business income this year and to be deducting my expenses fully.  I’m looking forward to the year when I do have a profit to report, but for now I’m just glad to have a few extra deductions on my 1040.

Have you been filing your blog income as hobby or business income?  The tax accountant in me would love to know!  Also, is this interesting and helpful?  Because I would consider doing a few more tax posts with tips for bloggers.  Let me know what you think 🙂

13 Comments:

  1. Very helpful information! For the past two years we’ve filed as a business for my blog and design site since it was my sole income. But, before that it was just a hobby… it would be great to know more about the limits for what you can claim as a hobby.

    1. Carrie, I’m glad you enjoyed the article! You are a huge inspiration to me, and I hope some day to make a livable income off my blog/business like you. I think I might write more on this topic in the future, as I know how confusing all the rules are! 🙂

  2. This is really helpful. The tax stuff confuses me life a lot and this was very clear and easy to understand!! I hope you do more posts like this soon. Thank you!

  3. I would list my blog as a business if the gains were bigger than losses, otherwise it’s just too much headache! Also, how do you compute that? The losses vs. gains are what exactly?

    1. Anna, you’ve asked some great questions that could take many posts to fully answer! But I will try give an ‘in-a-nutshell’ answer. You should be keeping track of any money that you make from your blog and any money you spend on your blog. Those are your income and expenses and show you if you have a net income or loss. If you report your blog as a hobby your total income is always taxable, your expenses are partially deductible, but your net losses are never deductible. Whereas if you report as a business, your expenses are fully deductible and your net losses can lower taxes on your other income (like wages for example). I hope that some helps, it’s tough since this is just the tip of the iceberg!

  4. I know you posted this over a year ago, but my big question is do I even need to file taxes? I post daily about my life and do review products that companies send to me. I am just doing this for fun, so how do I know if I need to file taxes. I do keep track of what companies send me because of deadlines and so forth. Some are send directly from the companies and others I purchase online with promo codes given to me by the companies. Any help or advice would be welcomed.

    Thank you

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