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!

Sole Proprietorship

[evilpenguin]

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.

Re:Sole Proprietorship

[enrico_suave]

IANAA but the parent is right.

I have a comprable situation with my sites and income derived there from.

You will want an accountant to help sort out which business type is best for you based upon the amount of liability you're willing to personally take on, what tax structures/consequences, amount of paper work you're willing to deal with, etc.

You seem to be running a sole proprietership just by the fact of getting this extra income and you most likely used your name and your social security number to set it up with google ads/yahoo ads and will get a 1099-misc from them to file as additional income. As I mentioned in the previous paragraph you'll want to consider which business arangement (with help of accuontant/lawyer) makes sense for you... sole proprietorship, LLC, Inc. etc...

There are benefits and drawbacks to each (hence the professional help).

It probably makes some sense to get some sort of legal entity registered with your state/etc and business classification so that you can subtract business expenses from your income so that it doesn't count as much towards your overall income. Again, this isn't tax advice, consult a professional... but if you have an online/advertising business some seemingly legitimate expenses would be: internet access (if used only for business purposes, or do a percentage), webhosting, advertising to promote your site, bank fees, probably a PC to do updates/edits, other costs incurred in relation to your topic/content *shrug*

It may or may not be worth the accounting headache, but that depends on the amounts we are talking and your personal tax situation.

You may also, assuming a day job, want to/need to adjust your income tax withholding to compensate for the extra income (or not... IANAA)

Good luck with your modest web publishing empire!

E.

Sole Proprietorship is Simple

[breadbot]

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.

NoLo

[_LORAX_]

"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 ).

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.

check state and local resources...

[enrico_suave]

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.

Keep in mind your personal liability

[Pengo]

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!

Re:Keep in mind your personal liability

[Ken Hall]

I only found an accountant AFTER I set up my S-Corp, and he told me I'd done it slightly wrong. He actually recommended an "LLP", which is a new type of business, although I don't know all of the details.

The problem with going down this road is that (like I said in my other post) it opens up a whole new level of paperwork.

The idea, like he says above, is to limit your "liability", so if someone sues the blog, they (theoretically) can't take your house, but in practice, if things aren't set up EXACTLY right, they can "pierce the shield", and get you anyway.

I have a friend who ran a successful computer service business as a Sole Proprietorship for YEARS. He avoided the liability issue by doing whatever he had to to keep his customers happy. In the long run, he found it was less expensive than trying to protect himself by incorporating.

YMMV.

Be cautious about "business" deductions

[mutterc]

You will have to report the income, as "self-employment" income. That's not any more difficult than anything else relating to individual taxes.

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.

Re:Be cautious about "business" deductions

[sartin]

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)

Actually, the IRS allows you to deduct hobby expenses to the extent that they offset income. IRS Publication 529 says:

You can generally deduct hobby expenses, but only up to the amount of hobby income. A hobby is not a business because it is not carried on to make a profit. See Not-for-Profit Activities in chapter 1 of Publication 535.

Liability

[the eric conspiracy]

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.

DON'T Form a Business

[BitGeek]

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.