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?"

Comments

Get professional advice..

[junster2]

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.

Accountant

[mjpaci]

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.

Re:Accountant

[Morgalyn]

I second this one. Do not go to franchised accounting firms which focus primarily on doing simple personal income taxes such as H&R Block and Jackson Hewitt (its actually possible none of the people there are trained accountants (with, say, a college degree or experience in the field)). What you want is to talk to a Certified Public Accountant (CPA). A CPA is required to stay up to date on tax law and other accounting information by participating in a minimum number of continuing professional educational hours per year. The certification process is on a state-by-state basis (generally) and requires a lot of knowledge both of accounting practices for businesses AND individuals, but also ethics and law. You could compare it to the bar exam for lawyers.

They should be able to advise you on the tax implications of reporting your income as personal hobby income (which is allowed, and doesn't require you to call yourself a business) versus different incorporation schemes. They will be able to tell you what will be involved and what your liabilities will be. They can advise you, based on your income and situation, which possibility might be best for you. They can prepare all your paperwork for you, if necessary, although some may not be comfortable with filing the legal forms and will ask you to get a lawyer (and they will probably be able to provide references). And, like the parent mentioned, accounting services are a deduction. They should be able to provide you an estimate of cost or a description of how they bill their services when you call them.

A lot of CPAs will provide a short consultation for free or nearly free. You don't have much to lose by getting professional advice in this case. I might be biased, my dad is a retired CPA :) To get started, CPAs have a professional association - the AICPA. It's like the ADA (dental association) of public accountants. You may want to ask your possible accountant if he or she is a member of the AICPA. You definitely want to ask them if they are certified and up to date with their certification responsibilities. Do check the Better Business Bureau in your area. Be prepared for your consultation by bringing along a copy of your last personal tax return, pertinent financial information for 2005 including your employment income and your ad revenue, and any documents you have made projecting your revenue in 2006. If you're married, you'll want your spouse's information as well.

If you're not in the US, well, I doubt any of this is useful information!

Various levels of business

[Ken Hall]

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.