Bloggers often ask me about taxes, which is a crucial topic for online business owners. Since I’m not a tax expert, I reached out to Josh from CPA On Fire to answer your top questions about blogging and taxes.
Josh, the founder of CPA On Fire, specializes in tax and accounting services for online businesses. He works with some of the biggest names in the industry, including John Lee Dumas from Entrepreneur On Fire. Josh has shared his expertise on various business podcasts and national TV segments.
When you’re self-employed, taxes can be tricky but manageable. Some people are scared to earn more or start their own business because of tax concerns. That doesn’t have to be the case! By learning more about taxes, you can use that knowledge to your advantage.
Here are your questions answered:
**How should business structure be determined? When should I form an LLC? When should I switch to an S Corp?**
An LLC doesn’t offer tax benefits and is treated like a sole proprietorship by the IRS. It does provide legal protection, so consult an attorney about that. For tax benefits, consider an S Corp, which can save you on self-employment taxes. Generally, think about an S Corp if you earn around $50k a year in net income, but talk to your CPA first.
**When should a person start paying quarterly taxes? How do you do quarterly taxes?**
If you owe at least $1,000 in taxes at year-end, the IRS expects you to pay quarterly estimated taxes to avoid penalties. Estimates are based on what you owed the previous year. If you didn’t owe taxes last year, you won’t be penalized for not paying estimates this year. Pay estimates through mailed vouchers or online at the IRS direct pay website.
**How do I know if it’s a hobby or a business?**
It depends on whether it makes money. The IRS says a business must make money three out of every five years. If not, it might be considered a hobby, and you could lose the ability to deduct losses against other income.
**Can you claim 100% of business internet when working from home?**
Yes, if the internet is essential for your business. Some CPAs use a percentage for business vs. personal use, but I’ve never had the IRS challenge a 100% deduction.
**What are the best tax savings hacks for bloggers and digital marketers?**
Turn personal expenses into deductible business expenses, like cell phone, internet, and home office. Plan vacations around business activities to deduct more of the trip. For example, attend a conference or meet industry influencers during your vacation.
**What are common/possible tax deductions for a blog?**
Anything you spend to improve your business is likely deductible. For a blog, this includes home internet, computers, and other necessary items. Travel and product reviews can also be deductions with proper planning.
**What are the rules for registering your business or LLC in your home state vs. another state?**
You must register your LLC in the state where you operate. If you travel frequently with no home state, you can choose where to register more easily but will need a registered agent. Always remember, you pay taxes where you live.
**What advice do you have for bloggers who live and work abroad full-time?**
US citizens living abroad can benefit from the foreign earned income credit, exempting up to $104k from US taxes if you live outside the US for at least 330 days a year. You still pay social security and Medicare taxes on all income.
**How do I handle referral credits received for software like Tailwind?**
Non-monetary compensation is taxed like cash. Claim the market value of what you received as income, and you may receive a 1099 form for this.
**What is the best way to keep business finances separate from personal ones?**
Form an entity like an LLC or S Corp and open separate financial accounts. Keep business and personal funds separate to help with taxes and potential legal issues.
**Do I need to charge/pay sales tax on digital product sales like printables, eBooks, and courses?**
Sales tax rules vary by state. Some states tax all digital products, some tax none, and others tax some but not all. Know the rules of your state and any states where you have a physical presence. With recent changes, you might be liable for sales tax in multiple states, so consider using TaxJar for help.
**Do I have to pay taxes for comped press trips?**
It depends on how the trip is reported by the provider. If it’s necessary for your work, you may not report it as income. If it’s treated as a giveaway, you will. Check how the provider reports it to the IRS.
Don’t let taxes scare you. Learn how to handle them for your online business and take control!