Updated January 10, 2017
Yay for taxes! Fun, right? Well, not super fun, but I do appreciate things like the library and fire fighters so I gladly do the tax thing.
I remember the days when I could do my taxes in about 20 minutes flat. Get the W-2, fill out the EZ form and go. But now, self-employment makes things a tad more complicated. I still wouldn’t trade it.
Now that I’ve been at it a few years, here are my tips.
Disclaimer & disclosure: I’m not an accountant or a lawyer, this comes from my personal experience only. Please seek the help of qualified professionals to help you with your personal situation. Also, some of the links included below are affiliate links, meaning, if you click through and make a purchase I will get a commission (at no additional cost to you).
1. Count all your income
Blogging income is not just the cash you make. It includes any compensation, like items you received for reviews, Swagbucks, trips, conference sponsorships, conference swag, free stuff (appliances, clothes, household products) and more. Check out Sarah’s post for a detailed breakdown.
Related: You might also want to check out my post 12 Things to Do Before Making Money Online.
2. Report all your income even if you don’t get the forms
Because my relationship status with many of the companies I work with is “contractor” or “affiliate” instead of “employee” I get a lot of 1099-MISC forms during tax time. They show how much non-employee income I received during the year. Even if I don’t get a 1099 from a company (because someone forgot or because my income didn’t meet the $600 threshold) I still report the income. This is why it’s so important to keep track of everything that comes in during the year.
3. A word about PayPal, the 1099-K and double reporting
A few years ago I encountered this situation. Someone else emailed me saying they encountered it as well so I thought I’d mention it here.
Here’s the situation:
I am an affiliate for some companies who pay me through PayPal. At tax time, the company I’m an affiliate for issues me a 1099-MISC (and notifies the IRS) as it should. But also, PayPal issues me a 1099-K for the same amount (and notifies the IRS).
Both do so rightly. As explained on the IRS site, companies who pay a contractor more than $600 in a year must issue a 1099-MISC and file with the IRS. As explained on PayPal’s site, PayPal will issue a 1099-K and is required to file with the IRS if in one year you receive more than $20,000 and 200 or more payments.
The problem is, effectively, my income was reported to the IRS twice so the IRS thought I made twice as much as I did.
When this happened the first time, I didn’t catch it while I was filling out my taxes. Several weeks after filing my taxes (actually I think it was closer to a year later), I received an official letter from the IRS telling me I had not reported all my income. As a recovering rules girl, I panicked slightly, for I do not like being in trouble. However, they sent paperwork along with the letter allowing me to explain the situation, which I did, providing probably way too much documentation as proof. 🙂 A few weeks later I got another letter from them stating they understood and I was all clear.
4. Don’t do the heavy lifting yourself
While I don’t love doing my own taxes, I don’t hate it either. And our tax situation isn’t so complicated to warrant hiring someone to do it for us (plus, I’m cheap). But, doing taxes manually is not so much fun. For several years I’ve used Turbo Tax (the online version). I highly recommend it.
Update: In 2016 as our tax situation became more complicated, I decided to hire Josh Bauerle of CPA on Fire. He has been great. He helped us become an S-Corp (a significant tax benefit in our case), he has been very accessible via email throughout the year (I took advantage of this a lot as Texas seemed to have a hard time grasping the change in our tax situation and kept sending letters), he knows the unique situations of bloggers (he works with people like John Lee Dumas of Entrepreneur on Fire) and it’s great not having to worry about doing our taxes on our own. As you can see from the Services page on his site, hiring a CPA is a significant investment so I recommend waiting until you have ample revenue to justify the cost.
5. Estimate right
As a self-employed blogger or freelancer, you may have to pay quarterly estimated taxes. That is, 4 times a year you have to send in a chunk ‘o change to the IRS since you don’t have an employer withholding taxes for you. In the past I underestimated which meant I had to shell out extra cash when I filed my return. Talk about sticker shock. These days, as I receive income, I automatically send 25% of it to my “Taxes” envelope. It’s good to eliminate surprises.
6. Don’t forget to issue the right forms
Do you work with contractors, like designers or virtual assistants? Do you pay affiliates for an ebook, a product or a service? If so, you might have to issue 1099-MISC (or other forms). Technically these have to be sent by January 31. (Turbo Tax makes this super easy with their Business service.)
7. Deduct what you can
8. Use this year to get ahead for next year
The first few times you wade through tax season as a blogger, no doubt you’ll realize how many pieces there are to the puzzle. And if you’re like me, they’re scattered all over the place. My recommendation is, as you walk through the steps take notes. Note categories, expenses, income sources, etc. Use those notes to get organized for the next tax season.
9. Handy tools to keep track of things
If you’re not a fan of keeping all your receipts and documents in a shoebox, an app I really like is called Scannable. (It works with Evernote like a dream.) It allows me to easily grab an image or PDF on my phone and save to Evernote.
Accounting or bookkeeping software – There are many options. Wave Accounting is free. QuickBooks is popular as is FreshBooks. I personally use a little-known software application called Budget which allows me to use the envelope system easily.
Form W-9 – Reputable companies will require you to fill out this form before they pay you as a contractor. You may also want to require your contractors or affiliates to send one to you, especially if you know you will pay them more than $600 in a year.
Form 1099-MISC – What you may need to issue to anyone you’ve paid through the year. If you are working with a CPA or software like Turbo Tax, you may not need this hard copy.
10. Helpful resources
Killer Tax Tips and What Business Type to Form – This podcast episode with Josh Bauerle on The Amazing Seller was key in helping us decide to become an S-Corp.
Get Ready for Taxes – Deductions Tips – Sales Tax – Mistake Prevention – This episode is also helpful, particularly if you sell tangible goods on Amazon. (Josh’s website is also helpful.)
Your Blogging Business: Tax Talk & Tips from a Bookkeeper Turned Blogger – This ebook was written several years ago but was very helpful for me. It has practical tips and information and discusses the issue in great detail.
As I mentioned before, check out my post 12 Things to Do Before Making Money Online.