Slashdot Mirror
Is a Weblog a Business?
Clinko asks: "I currently have a couple moderately successful websites with Google and Yahoo ads. Combined, they will generate a couple thousand this year. (Sounds great, but read on...) The problem is that I know nothing about starting a business, filing taxes (U.S.) on such, or if I even need to be a licensed business. Will I need to start a licensed business on income generated from ads? I'm sure someone from Slashdot has been in a similar situation. What was your solution?"
tax accountant, H&R Block for example. I'm sure if it's under a certain amount you can just declare the intake as income, but as a business you may be able to find specific deductions for parts of the business. People here can speak from experience, but for a few bucks talking to an expert that you'll be able to bitch at if you get audited is worth it imho...
The best and only advice I can give you is to find a good accountant and a good lawyer. If it makes sense to turn it into a business, they will let you know.
Slashdot is good for somethings, this is not one of them.
Do not go to H&R Block on this one. Go talk to an accountant -- it'll cost you $300 which you can then turn around and deduct. You probably are a sole proprietorship -- but if you have doubts, talk to an accountant. Do you live in the US? If not, take the money and run -- from your own government.
You are a sole proprietorship. Your income will be reported on your personal income tax. You should get a 1099-MISC from your ad agencies.
As others have said, you can talk to a lawyer and/or an accountant to see if you could save money by doing something more "advanced," but I do the above. It adds two forms to your 1040: Schedule C and Schedule SE. About half your income from the blog will go to taxes.
IANAA (Accountant), but I've done a few thousand dollars' worth of consulting -- never more than about $10k in a year -- and self-employment tax is simple. You just get a 1040-SE form and fill it out. The tax rates are a little higher (about 7.5% for me) than if you are employed because you will have to pay your own social security employer's tax (I guess part of social security tax is paid for by the employer). If you make very much, the IRS wants you to file estimated tax payments quarterly, but that's not too hard either. If you've been doing your own taxes, then you can definitely handle the additional paperwork. You can even include expenses on a 1040-SE.
"Tax Savy for Small Buisness" by NoLo press ... should have more than enough information to keep you out of trouble with the IRS. You can pick it up in any local bookstore. Look for the signature yello/orange books.
Trust me, they are excellent and colover all you need to know ( and a lot more ).
If your advertisers issue checks directly to you, in your name, you really don't have to do anything except report the income on your personal income tax return. Even if they don't issue you 1099s, you should do this. They pretty much HAVE to issue the 1099s though, in order to write off the expense. It's a sort of cross-check, see?
If they're happy working this way, going farther is more up to you.
If you want them to issue the checks to a separate entity, like a company, you have to go through some additional hoops. You have to register the company name ("Fictitious Name") with the state, and then go to your bank and set up a Business checking account to receive the money. It's still YOU, YOUR income, you're just providing a separate pocket to drop the cash into so you can keep track of it.
The next set of levels come up if you want further separation of the company from you, if there is more than one person involved (partnership), or if you want to protect yourself from being sued. Then you need something like an LLP or a Corporation. Some companies won't deal with individuals or Sole Proprietorships because they don't like the trouble of issuing 1099s, so they will require you to set up a corporation. Reporting income from Corp-to-Corp payments is the responsiblity of the receiving party, so the payer can just issue the check and be done with it.
The problem with doing this, is it opens you up to a whole new level of paperwork and reporting for very little good reason. (One friend of mine ran an extremely successful and profitable computer service business as a sole proprietorship for YEARS because he just didn't want to bother with the paperwork.)
Rule of thumb: Do as little as your customers will accept and you feel comfortable with. As long as you pay the proper taxes on the income, generally speaking, nobody will bother you, and even if the IRS comes calling, you can show them you've followed the rules.
DISCLAIMER: I am not a lawyer or accountant, but I've had my own consulting business (S-Corporation) for close to ten years now, and I have friends and associates who also run their own businesses in various forms, so I have some familiarity with the ins and outs.
Small Business Association
and someone mentioned NOLO which has a lot of articles (besides the publication mentioned) on legal stuff...
Good to get a sense of this stuff before seeing the accountant...
e.
Build Your Own PVR/HTPC news, reviews, &
Just keep in mind that in a sole proprietorship, that your personally liable for your business. Most small businesses can cruise along just fine, but if you are worth a lot (house, car, etc), I wouldn't risk it. Also, if you plan on posting things that are potentially litigious on your weblog, I would consider at least a LLC. I am not sure if there are messed up laws that could potentially tie you up in litigation from the actions of your users, who knows (a lawyer, definitely not me).
You can usually do that for under $250, and under $500 with a lawyers help. I seem to remember thats how the costs for us, our small logistics software house, to incorporate LLC in Nevada.
Good luck with your venture!
If you want to consider this a "business" and write off the expenses related to it, the IRS says it's got to be an activity carried on for the purpose of making a profit, not just a hobby that happens to generate income (even if it's a net profit). They have some nice, vague criteria on their website. Being considered a hobby doesn't free you from paying taxes on the income, but it does prevent you from deducting the expenses.
As for needing licenses, that's highly dependent upon your state, county and city (any of them might require licenses). I live in Raleigh; North Carolina has a "Business License Information Office" you can call, and they will tell you what licenses you need. Hopefully your state / locality has something similar.
My guess would be that nobody will care about licenses since you're not "engaging in a trade". However, only your state / local government knows for sure.
First of all, there really isn't any such thing as a "Licensed Business". Not in IT, in any state I know of anyway. Anyone can do work and get paid, as long as they report the income. Anyone can register a "Fictitious Name", open a bank account, and collect money. Licensing only comes into it when your business is regulated in some way, and then it's usually the "instance" (store, bar, restaurant, etc.) that's licensed. The business itself isn't.
If you SELL STUFF, you have to register with your state to collect sales tax, and (in my state, anway) submit periodic reports on how much you're collecting. If you collect it, you have to send it to the state either quarterly or monthly, depending on how much is involved. In my state, services aren't taxable, so I rarely collect sales tax, but I do occasionally sell stuff, so I'm properly registered, and collect and forward the proper taxes.
Someone else mentioned Estimated Taxes, and that's a good point. If you're making more than a certain amount either unreported, or on 1099, you should make quarterly payments. Otherwise, the IRS will assess an "underpayment penalty" when you file. The leading personal tax programs can help you figure this out.
Working for yourself by Stephen Fishman is an excellent resource on this topic.
It presents the facts clearly and offers up solutions for improving your tax situation.
It answers many questions like business form (LLC/S-Corp/C-Corp), what is and isn't deductible, proper reporting and accounting, tax benefits like health savings accounts, etc, etc.
The primary purpose of forming a corporation is to shield your personal assets from business creditors, secondly to gain favorable tax treatment. I know someone who failed to do this and lost their house.
Be careful, see a lawyer, get the appropriate insurance if you are incurring any sorts of liability.
If you aren't going to be dealing with employees then the process is pretty straightforward. I'm not an accountant but I have started a couple of sole proprietorships over the years.
If you want to make things look more 'legit' by starting up a DBA it doesn't greatly complicate your taxes.
You should be able to find out where in your local area you to go to get a DBA (doing business as) form to set up a sole proprietorship. It usually costs about $20-$25. This gives you to the ability to do business as "Bob's Weblog" or whatever.
You can then go get a state/federal employer identification number if you need to pay employees, and deal with all of that nonsense, but it doesn't sound like you are going that route.
If you want to take checks as "Bob's Weblog" go down to your local bank with the DBA paperwork and open a bank account for the DBA. You'll probably pay $10/month for the account, but it lets you take checks made out to the name of your DBA. Think of it as a surcharge for the appearance of legitimacy.
You then just report your income on your personal taxes at year end using the usual 1040A. The forms tell you all you need to know. Now, if you have a lot of purchases associated with your "business" it may make sense to talk to someone like H&R Block about trying to get deductions associated with the business. But if you aren't incurring more than a grand or two worth of expenses, then its not worth itemizing your deductions as they probably won't exceed the standard deduction. In the case of a blog or two, you probably aren't yet to the point where itemizing makes much sense, unless the rest of your taxes are already more complicated or you are paying for a ton of bandwidth.
This is the simplest way to make your business look bigger than it is, without incurring any form of 'double taxation', board meeting overhead, or a crap-ton of S-corporation paperwork.
Now, that said, if you are posting something you might get sued over, then you might want to talk to a lawyer to see if starting a real corporation would gain you any legal protection, but it'd destroy any profitability you have.
Sanity is a sandbox. I prefer the swings.
Others have pointed all this out, in addition to certain advantages that businesses have over individuals when it comes to taxation: expenses can be deducted from revenue, and capital expenditures can be depreciated. How to do this correctly requires the advice of an accountant and lawyer.
But, the number one thing you should remember is that you have to pay your taxes on the income you earn (and this includes self-employment tax) whether or not your business is 'legit', that is duely licensed, collecting and remiting sales taxes, etc.
You could've hired me.
Let me tell you, filing a business license is a great way to become personally acquainted with every level of government in your state, because they will all call you up with forms for you to fill out and taxes for you to pay.
Being a business is a licensed class, and unless you *need* to, don't do it.
What you have is a hobby. Keep it a hobby. If you're concerned about being sued, well a small business will not protect you, you'll still have to hide your assets anyway.
If you keep it as a hobby you don't have to pay taxes on the income, provided it doesn't exceed your hobby expenses. IF you keep it as a hobby you dont' have to file countless forms every three months, pay thousands ot lawyers accountents, etc. And if you keep it as a hobby you are better protected.
The only reason you would ever want to form a business is if you plan to sell stock, or if you need to form a partnership and have joint property.
Seriously. People have been told a lot of gruff, and of course, accountants and lawyers have spread the idea that you need to lawyer up and have an accountant going over everything.
But you don't. Regular old tax software will handle your small business accounting as far as the IRS is concerned (and if you get some you'll see the advantages to keeping it a hobby) The IRS recognizes hobbies as a legitimate area where you can make some money, and while they will want their share of it, tehy will only want a share of your profits.
Forming a business results in a never ending amount of hassle-- from a greatly increased amount of bulk mail to periodic calls and even visits from random taxing authorities you've never heard of.
I learned my lesson once, never again.
Also, if you do want to form a business for whatever reasn, consider forming it out of state-- nevada is a good state, or out of hte country, such as in the carribean. In that case, you just need to file a registration to do business in your state. Since the business is not domiciled in your state, its a much lower burden of paperwork and regulation.
And virtually every business friendly country, or business friendly state is likely to give you a vastly better level of business protection (privacy, insulation etc) than your home state.
Yeah, and you guys panned the ipod too: http://apple.slashdot.org/article.pl?sid=01/10/23
IANAA, but I do my own taxes every (the long ones) and I've read a bit of tax law (bit being relative to the whole). If you don't actually profit from it, i.e. you spend all the money you make upgrading your hobby related computers, buying bandwidth, etc.. it's not taxable. It is still reportable but all of the income is deductable. It is pretty simple IIRC too (only one extra form)
Of course if you are actually making a profit, then never mind...
Simple: Go figure it out for yourself.
Go to the local library. Check out books on running a business, setting up a corporation, accounting, and everything you are curious about. Find out what you have to do to make it all legitimate. There is a wealth of information available. If the local beauty salon can figure it all out, so can you.
Fortunately, in the US, that income you generate is considered personal income. You are taxed just as much as if you had a job. Unfortunately, that means you have to pay Social Security and Medicare tax on that income. If you forget to do that and report the income, the IRS will happily remind you with a hefty fine. When your income becomes approximately what you need to live on, you should probably start looking at a corporation.
The radical sect of Islam would either see you dead or "reverted" to Islam.
The SBA is a great start. Immediately following your visit there, go straight to your appointment with SCORE (details at www.score.org).
SCORE is the Service Corps Of Retired Executives, and should be the second stop for anyone who thinks they might be in business for themselves.
Others have talked about "turning it into a business". I am in Australia, and the detail will be different, but if it is earning you a regular income, it is a "business" as far as the taxman is concerned. Get a good accountant, one that you feel comfortable with, and see that you claim all the deductions available. Incidentally, H. & R. Block operate in Australia as well. I have never used them, but they seem to know their stuff. But you need somebody who will advise you on business strategies as well, not just somebody to file returns for you.
I am not a professional accountant or lawyer, so take my advice for what it is worth. However, my wife owns her own business so I have some exposure to the world of self-employment.
First, you ask about getting "permits" and such. You will have to check with you locality, but where we live, you probably would not need any "permits" for what you are doing. If you wanted to register a business name, you would need to get a "permit". If you were selling merchadise, you would need to collect sales tax so you would need to register with the proper tax authorities. If you wanted to put out a sign in front of your house advertising your business to attract customers, you might need approval from the local zoning authorities. If you were doing business which had some form of government regulation (i.e selling cigarettes or alcohol), you would probably need the proper licenses.
However, if all you are doing is collecting ad revenue from a website, you probably do not need to involve "big brother". Again, you probably should check with a professional to cover your backside.
As far as taxes go, technically you have to pay taxes on what you are earning. This is especially true if the company which is paying you the ad revenue sends you a Form 1099-MISC in the mail. This means that they have reported to the IRS that they paid you for some sort of service as a non-employee.
You basically have two choices. You can either treat this income as "Income from Non-Business Activities". This means that have earned this money through some activity that you aren't actively engaged in for a profit. There may be some technical criteria for this, so you should consult for a professional for clarification. This type of income is reported as "Other Income" on Form 1040. The upside of doing this is that it is simple, plus you do not have to pay Self-Employment Tax. The downside is that you cannot take deductions for business expenses.
Your other choice is to treat this as businss income. If you go this route, you have to fill out Schedule C (or I believe there is a Schedule C-EZ which may cover your simple case). On Schedule C, you can also take deductions against your business income for expenses related to running your business. Being able to deduct these expenses can offset your income and reduce your taxes. However, you will need to have saved receipts so that if you are audited, you can substantiate your deductions to the IRS. Also, you have to know about the rules for depreciation if you want to deduct the cost of computers and such. Plus, if you use the computer for personal use, that may effect your ability to deduct.
The downside of treating this as a business is that you have to pay a self-employment tax (Scehdule SE). You can deduct 1/2 of this tax from your income on Form 1040, but it is still an extra tax that you wouldn't have to pay otherwise.
If you want to get more complicated, you can incorporate your business and then you wouldn't report your income on Schedule C. Your incorporated business would have to file its own tax forms. I do not know much about this route, but I do know that it is much more complicated - probably more complicated than what you need when you are just making a couple thousand on the side. You are subject to a lot more paperwork, rules, and regulations. Frankly, it seems like in your case, going this route is not worth the hassle.
Just to give you an example, my wife has an unincorporated consulting business. She is clearly doing this activity as a business, so we file her income on Schedule C with all of the associated benefits and drawbacks. However, she also taught a dance class at the local community school, which paid her a couple hundred bucks for her troubles. Teaching dance has nothing to do with her consulting business, and it was done for fun, and not as a money-making, for-profit activity. Therefore, we just reported it as "income from non-business activities".
Somebody mentioned estimated taxes. If the amo
------
www.moneybythenumbers.com