Social Media has created new opportunity and communication not seen since the invention of the telegram and telephone. Both of these two historic inventions allowed us communication almost instantly with people across the street or across the world. Blogging and social media, collectively known as new media, has increased opportunity in almost every aspect of our lives. It has definitely increased communication, but has also given rise to a new source of income for many people.
Izea, Inc. helped bring this possibility to the masses by offering Sponsored Tweets (get paid for tweeting) SocialSpark (get paid for blogging) and WeReward (get paid for using your smart phone and checking into businesses). How will these new opportunities impact your taxes?
In very simple terms you are now a small business owner. Congratulations on achieving business ownership! Owning a business creates increased tax reporting responsibilities as well as more available deductions. Here are six tips to make tax time less stressful when it comes to operating a small business within New Media.
- Business income gets reported on a Schedule C for both Sole Proprietor and Limited Liability Companies (LLC). As always, there are a few exceptions when it comes to an LLC.
- Track 100% of the income derived from your business activity from every single company you contract regardless of if you earn $1.00 or $10,000 from the company. Personally, I use a completely separate checking account and PayPal account for business income.
- Track 100% of the expenses directly associated with the company. What are acceptable expenses? They are expenses incurred which are ordinary and necessary for your business, and to deduct 100% of the expenses cost must be used 100% for business. Most bloggers have internet, computer, conferences, social media tools, business cards, web hosting, domain registration, and so on.
- Find a qualified tax professional or bookkeeper to help you. – interview them and ask questions related to their experience and qualifications. Even if they prepare your taxes, you (and your spouse if you file jointly) are ultimately the ones responsible for the information in the tax return.
- Even if you don’t want to explore social media, new media, and/or blogging as a true business but rather just want it to be a hobby the income still needs to be reported on your tax return. With a hobby you cannot show a loss on your return (on the business portion – Schedule C) but it is allowable to deduct expenses up to the amount of income earned.
- Have Fun!
The thought of increased tax reporting and possibly increased tax liability and interaction with the IRS makes many taxpayers simply want to put their head in the sand. This is where a good and qualified professional who understand the business of blogging and new media can make the process less stressful. There is no one size fits all when it comes to taxes and important to always consult a tax advisor for specific advice related to your specific circumstances.
Please note: While every attempt has been made to provide timely and accurate information, this article should not be considered a definitive tax guide, nor should it replace the advice of a qualified tax professional. Also, per circular 230 nothing in this article should be used to avoid paying taxes.
Nicole, Finance Diva, writes about all things relating to credit, taxes, understanding loans, and generally how you can do more with less. She can be found on Twitter as @nickelnm, or on Facebook. She speaks virtually and in person on how people can impact their lives positively by having a better understanding of money.
