Tax Tips for Bloggers and Contest Winners

Tax Tips for Bloggers and Contest Winners

Hi everybody! This is the Instant Tax Gal with Instant Tax Service, and today we’re happy to answer all your questions about blogging, freelancing, prizes, and your taxes! Thanks so much to Krissy for the invite to her space.

We started running contests on our Twitter feed, @Instanttax last month. Since then we’ve gotten a LOT of questions from prize winners, participants, and curious bloggers about whether or not they have to claim prize values and/or income they were generating from their blogs on their taxes.

Here are some answers to some of the most common questions we hear:

1) Do I have to claim prizes won in contests even if I don’t receive a 1099? (we get this one a lot!)

Short answer: yes. You must claim the market value of all prizes you receive. There are exceptions to this, however. If your overall income is less than the IRS threshold requiring you to file, you do not have to file a tax return and do not have to claim income if you make below the following limits:

If you’re 65 or under, no one claims you as a dependent, and your filing status is single, your gross income must be less than $9,350. If married filing jointly, your income must be less than $18,700 if both spouses are under age 65, married filing separately (of any age) with gross income over $3,650 or more, or filing head of household with gross income of less than $12,000. If you’re over 65, the income threshold goes up. There are also special situations that may apply to you that will require you to file. Click here for more info.

So if you’re a stay at home mom, not claiming unemployment (or made less than $8,950 in unemployment after deducting the $2,400 tax-free unemployment benefit), and you’re single and/or you and your spouse made less than $17,900 this year, you DO NOT have to file a tax return at all!

If you make more than this, you’ll need to file and claim this misc. income as revenue. Does that make sense? We know that sometimes it looks overly complicated!

2) Do I have to claim advertising revenue I made from Google Adwords/site advertising?

Short answer: yes, unless you’re making less than $400 and are not generating revenue from any other source. That’s because revenue generated from your website is considered self-employment income, and self-employment income must be reported if it’s over $400 so that you can pay self-employment tax on it, unless the amount of your expenses is consistently more than you bring in. It’s the same as if you had a home hobby business where you create quilts, handmade books, or other hobby items and sell them for cash.  That money must also be claimed on your taxes if you’re making more than $400.

To be considered a hobby instead of self-employment, the expenses of creating/running/maintaining your website (your “expenses”) must exceed the income you make every year.  So if that’s the case on a regular basis, you don’t need to report the income.  I guess a better way to think of the income is the net income needs to be more than $400 and that gets claimed.  So, if your make $500 each year, but every year have $1000 in expenses, they don’t need to claim it.

So let’s say you’re filing single, you made $8,000 in unemployment last year, and you generated $200 in ad revenue from your website. According to the IRS’s rules, you don’t have to file a tax return.

But if you’re filing single, you made $35,000 last year at your day job, and you generated $200 in ad revenue from your website, you’ll need to file and you’ll need to claim the $200 on your tax return as miscellaneous income. UNLESS you spent more than $200 in business expenses maintaining your website.

Again, this stuff can get tricky. It really depends on your individual situation.

3) If I’m a stay at home mom and the only revenue I’ve generated all year was $300 in advertising from my site, do I have to claim it?

Short answer: probably not, provided you and/or your spouse are making less than the above income levels. If you make above these allowances, however, you will need to file a tax return AND claim the $300 in advertising as miscellaneous income. Remember, if you’re making more than $400, no matter what your income level, you WILL have to report this income so you can pay self-employment tax on it, unless the amount of your expenses exceeds the amount of income you generated. Clear as mud? Yes, the IRS does like to make things complicated! The good news is that if you’re getting self-employment income, you can deduct business expenses, which is up next!

4) If I’m claiming revenue generated on my blog, can I deduct expenses?

Short answer: yes.  The good news about all this income-claiming is that because you’ve derived revenue from your labor you can write off all of your business expenses and reduce the amount of your taxable income. Now, there’s an important distinction here between blogging as a job and blogging as a hobby. Here are some questions to ask yourself so you’ll know the difference. If you’re not blogging for profit, allowable deductions cannot exceed the gross receipts for the activity – but you can still take deductions up to the amount of money you generated from your blogging activities.

Here are some often overlooked deductions that bloggers and freelancers often forget to take:

1)  Internet. If you need internet access to complete/conduct business, it’s tax deductible. This includes internet access you pay for in coffee shops when you work on your writing/blogging there.  Remember, however – you can only claim the % of the expense that you actually use for your business. So if you spend 50% of your internet time browsing at Amazon.com and 50% researching your next blog post, you can only deduct 50% of your internet expenses.

2)  Website. Just revamped your website? Did you pay someone to design it? That’s a business expense! So are any fees you pay to purchase domain names or host your website.

3)  Computer. Every time you buy or upgrade the computer you use for your writing/blogging, it’s tax deductible.  In order to avoid that tricky “only deduct % of time you use item for your business,” we recommend dedicating one computer in your home exclusively to your business.

4)  Home Office. If you’re like most bloggers, you probably work from home. If you have a space in your home dedicated to your work (like an office or study), you can deduct the costs associated with maintaining that office. You can include a percentage of mortgage interest, and utilities. Keep in mind that this space must be used exclusively for writing purposes. If the IRS walked into your office space, would they be able to tell that this space was reserved exclusively for your business? A spare bedroom with a computer in probably won’t make the cut!

5)  Office Supplies. Paper, printers, pens, postage, envelopes, etc. Anything you buy to help you conduct your writing/blogging work is tax deductible.

6)  Contractors. Do you pay your guest bloggers?  How about social media consultants? Do you pay your niece to come over once a week to make photo copies and file paperwork? The fees you pay to people to help you complete your work are tax deductible.

7)  Advertising. Interested in Google Adwords or Facebook advertising to get more readers/followers? The costs associated with advertising your website are tax deductible!

Ok, hope your eyes didn’t glaze over too much after reading all that!  If you have questions about your particular situation which aren’t addressed here, please feel free to ask them in the comments. We’d be happy to answer!

Also, don’t forget to follow us on Twitter at @Instanttax for your chance to win a MacBook Air.  Contest ends February 15^th.

Happy tax season, everybody!

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