Side Gigs in the USA - Schedule C vs Hobby

[JoJo]

I started a blog a couple years ago and had no income (I had less than $100 in affliate sales, but couldn't get a payout until it went above some threshold).

I just started ads in April and now looks like I might have around $500 in income this year.  But my expenses, including a couple conferences, hosting, software, and tools will far exceed the $500.

Income in future years will likely grow.  And expenses will too.  I plan on retiring from my "day job" within the next year, so besides investments +  some deferred compensation (social sec taxes already paid on this), my blog will be my only income. 

Does it make sense to start filing this as Schedule C?  I understand as a hobby I would have to pay taxes on the income without the ability to write off the expenses since I am not itemizing either. 

If I'm sure my net income for the year will be negative or near 0, is there still a requirement to do the quarterly tax payments?  Or just pay something and get a refund at the end of the year is better?

If anyone has any good links or videos, please link.

[seattlecyclone]

Income in future years will likely grow.  And expenses will too.  I plan on retiring from my "day job" within the next year, so besides investments +  some deferred compensation (social sec taxes already paid on this), my blog will be my only income. 

Does it make sense to start filing this as Schedule C?

I think so. You make it sound as though you're planning to grow your income from this activity. This coupled with the fact that it will be your only earned income going forward makes it sound very reasonable to start filing as if it's a real business today.

If I'm sure my net income for the year will be negative or near 0, is there still a requirement to do the quarterly tax payments?  Or just pay something and get a refund at the end of the year is better?

You don't need to pay separate quarterly taxes for your business if it's a sole proprietorship. It all goes on to the same 1040 along with the taxes for your wage and investment income. Everyone needs to make sure that they're paying their taxes as they go, either through payroll withholding or quarterly payments or some combination of the two. Just make sure that your total payments throughout the year meet the requirements for your total taxes and you should be fine.

[JoJo]

Cool, that means I can take a couple years of losses too!

[DadJokes]

General rule is that if you do not run a profit in at least three of your business' five prior years, then it is considered a hobby. So, do you plan to start making a profit on your business within the next three years?

That rule is not absolute, and there are plenty of exceptions, but it's a nice guideline to go by.

[Linea_Norway]

You should keep a good overview of your income and cost on this hobby, in case the tax company wants to check your numbers.

[JoJo]

General rule is that if you do not run a profit in at least three of your business' five prior years, then it is considered a hobby. So, do you plan to start making a profit on your business within the next three years?

That rule is not absolute, and there are plenty of exceptions, but it's a nice guideline to go by.

But could a person make it have a profit... like in years 1 & 3 there are loses, but in years 2, 4, and 5 I only deduct expenses that are less the revenues (i.e. just don't deduct all of the expenses so that it runs a profit)?

[JoJo]

Oh, and I'm not suggesting running losses of 10,000's and then profits of $1 in the profit years... it will not be out of line.

Like this year, I'm expecting expenses of about $1000 but revenues around $600.  It seems so silly to have to pay taxes on $600. 

[DadJokes]

I'm generally not a fan of deceiving the IRS, even though it feels silly to say that not claiming all of your expenses is "deceiving."

The IRS actually gives the following guidelines to clarify the difference between hobbies and businesses.

1. Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
2. Whether the time and effort you put into the activity indicate you intend to make it profitable.
3. Whether you depend on income from the activity for your livelihood.
4. Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
5. Whether you change your methods of operation in an attempt to improve profitability.
6. Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
7. Whether you were successful in making a profit in similar activities in the past.
8. Whether the activity makes a profit in some years and how much profit it makes.
9. Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

Even if you are losing money every year, you can still justify treating your website as a business by following as many of these guidelines as possible. They know that many businesses lose money in the first several years, and as long as you can show that you are treating it like a business and are making progress, they are going to be fine with it.

[JoJo]

I'm generally not a fan of deceiving the IRS, even though it feels silly to say that not claiming all of your expenses is "deceiving."

The IRS actually gives the following guidelines to clarify the difference between hobbies and businesses.

1. Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
2. Whether the time and effort you put into the activity indicate you intend to make it profitable.
3. Whether you depend on income from the activity for your livelihood.
4. Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
5. Whether you change your methods of operation in an attempt to improve profitability.
6. Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
7. Whether you were successful in making a profit in similar activities in the past.
8. Whether the activity makes a profit in some years and how much profit it makes.
9. Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

Even if you are losing money every year, you can still justify treating your website as a business by following as many of these guidelines as possible. They know that many businesses lose money in the first several years, and as long as you can show that you are treating it like a business and are making progress, they are going to be fine with it.

Cool.  i think most of the answers to these are "yes", with exception
#3  this is a early retirement venture.  I expect 99% of my income to come from my investments and pension, but a little side money is cool. 
#7 this is new to me, and I'm learning new skills as I go


On #9, I think if I got sick of doing this, I would be able to sell the blog.  People want aged sites with domain authority and ongoing income.    Current valuation is around $2000. 

The toughest thing for travel bloggers is knowing how much they can deduct and whether they need to report "freebies" they get as income.  I haven't really gotten freebies so not an issue yet, but I've seen some bloggers get comped $10,000 Villa stays, free multi day tours, etc - but they they have loads of work, photos, etc that come from these.  But how much of your travel is deductible?  I think clearing going to a conference could be deductible but what about flying to South America and taking a cruise to Antarctica on my dime to write blog posts about that?  I'm not planning on deducting that but say in the future I have enough revenue to cover such trips, does it become deductible then?  I've seen some successful travel bloggers claim they deduct all of their travel expenses.