If you blog you probably have Google Adsense or any other type of advertising on your blog. Here are a few things you need to know about this advertisement income you received:
- You are considered a contractor by these companies and you are likely to receive a 1099-MISC form for the income you received from this advertisement. Even if you don’t receive this form, you must report this income even if it is just for pennies. You must report this income even if the contracting company is not US based.
- Unless you have been hired by someone else to blog, in which case you are their employee, you are considered self-employed. If you received earnings in excess of $400 then you must pay self-employment tax on those earnings.
- You are allowed to deduct expenses related to your blogging: web-hosting, Internet connection, software, any costs related to research conducted for your blogging activity. As long as these expenses are reasonable and considered “ordinary and necessary” for your blogging activities then you are able to deduct them.
- You may also be able to take a home office deduction as long as you have an area in your home used exclusively for this purpose. This means an actual working space not a little corner of the sofa where you plop down with your laptop every morning to write your blog entry. If you have a dedicated workspace at your home then you can deduct a portion of your rent or mortgage, home insurance and utilities.
- You must run your blogging activity as a business not as a hobby. This means that your ultimate goal is to generate profit from this activity. The IRS considers an activity a business if it generates a profit for at least three of the last five years. If your blogging activity doesn’t generate profit in this manner then it is considered a hobby and as such you can only deduct expenses to the extent that you have generated blogging income. You may not use further losses to offset other income you may have had. If you run your blog as a business then in the years you generate losses you can use some of these losses to offset other income and reduce your tax liability.
If you are a blog reader you may have noticed some blogs have forfeited ad income for reader’s donations. Here is an interesting article as to whether those donations or tips are considered income and hence taxable.
You can find more information on how your advertisement income is taxed directly from Google AdSense right here. Also read more about what is a hobby and what is considered a business venture directly from the IRS.
Now for my disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the Internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.