Author Topic: Blogger spouse tax ramifications  (Read 2140 times)

Brilliantine

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Blogger spouse tax ramifications
« on: December 02, 2016, 03:24:57 PM »
Hi,

I am the only salaried employee in our household; we file jointly and end up with a marginal tax rate of 25%.

This year my wife started making (not a lot of, maybe a grand total of $5-6,000in 2016) money from her blog. This is her only occupation and she works very hard at creating content and promoting it.

The income is rather irregular and from various sources: sponsored posts, ad revenue, affiliate links, etc. I don't know if all or any of those sources will issue 1099 or similar but I have a feeling we will have a tax burden due to that income.

Question is, how should we handle that income? Should she start a business, keep accounts related to the business, and file taxes as a business? I feel like this would be much better than getting taxed at our, high, marginal tax rate but I don't know if the tax savings, if any, are high enough to merit paying an accountant or spending business incorporation fees, etc. I also don't know how much of an additional effort it would be on my wife to try and run her blog as a business.

Thanks!

Gin1984

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Re: Blogger spouse tax ramifications
« Reply #1 on: December 02, 2016, 04:24:21 PM »
Even as a sole proprietor she can open up a solo-401k and lower her taxable income that way.

Sibley

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Re: Blogger spouse tax ramifications
« Reply #2 on: December 06, 2016, 01:04:15 PM »
You probably need to file a schedule C business on the personal return, and have her pay self-employment taxes. If 1099s are received, then they just flow into the sch C, and any expenses are deductible. Depending on the amount earned, she may or may not receive 1099s.

Given the simplicity of what she's doing (from an accounting standpoint), keeping track of income and expenses in excel or similar should be adequate. For that matter, you'd be surprised the number and size of businesses that run out of a personal checking account and a shoebox of receipts. You'd be ahead of most of the them, keeping track in excel.

IRS allows cash basis reporting, which is most likely the best option for you.

This route avoids legal costs, accountant fees, and excess complexity. If the blog gets really big, then revisit the structure.

Things to research and consider:
-Home office (do you qualify?)
-What expenses apply? I would expect a portion of your internet costs, website related fees, advertising costs, etc.
-Solo 401k as Gin1984 mentioned

Doing that, you might be able to reduce the income down so that you don't pay much, if anything in taxes. And 1/2 of the Self employment taxes are deductible on the 1040.

This is completely doable on your own. The various tax prep softwares can handle this stuff, you might just have to get the next level up on the software.

trollwithamustache

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Re: Blogger spouse tax ramifications
« Reply #3 on: December 07, 2016, 09:09:17 AM »
A separate bank account for the business is a must. It makes it easy to reconcile (double check) your transactions in spreadsheet/quicken (whatever system works best for you) and the account statement. You can usually get a debit card for the account or separate credit card for the business and use that card to pay any expenses (ie home internet if its for the business)  If you ever get audited this keeps it pretty clean and easy for the auditor. 

Its also nice in that it keeps the money separate so when you are ready to transfer it over to your personal accounts, you can figure out what you owe in taxes and pay those estimated taxes upfront. Nobody likes taxes, but hopefully the blog keeps growing and estimate taxes will be a good problem to have!

Brilliantine

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Re: Blogger spouse tax ramifications
« Reply #4 on: December 09, 2016, 07:33:16 PM »
Thanks everyone; super helpful!

Brilliantine

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Re: Blogger spouse tax ramifications
« Reply #5 on: December 09, 2016, 07:39:46 PM »
I looked into the home office question. We do live in a 2BR apartment but we use the second BR as a guest room. I indicated to DW that if we reconfigure the room to be used as her office and her office only, we could probably deduct something. She's thinking about it.

For other expenses, I'd think some photography equipment purchases, etc. can be eligible. GoCurryCracker has an entry on his blog, IIRC.

Hmm.. "Recipe Research" can be expensed too? To a degree? :)

trollwithamustache

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Re: Blogger spouse tax ramifications
« Reply #6 on: December 12, 2016, 08:29:55 AM »
I looked into the home office question. We do live in a 2BR apartment but we use the second BR as a guest room. I indicated to DW that if we reconfigure the room to be used as her office and her office only, we could probably deduct something. She's thinking about it.

For other expenses, I'd think some photography equipment purchases, etc. can be eligible. GoCurryCracker has an entry on his blog, IIRC.

Hmm.. "Recipe Research" can be expensed too? To a degree? :)

If something is going to be written off, it needs to be documentable.

My mom used to write off recipe research expenses. She and her business partner would rent space and teach one off cooking classes, so she had a pretty legit paper trail to back it up. They recipe note books, notes on how the cooking went, tasting notes with her and her partner evaluating recipes in addition to the receipts. They would also be making the same dish several times in a row. (yeah same thing for dinner 5 nights in a row) She also had an agent and was trying (unsuccessfully) to get a cookbook published.  She had some back up to make it reasonable. For what its worth, they did get audited once and it was fine.

The home office deduction is a tough one to figure out. I have found that one to be incredibly confusing and there is a ton of contradictory advice out there from sources that otherwise seem legitimate.

 

Wow, a phone plan for fifteen bucks!