Doing the books is no fun. But we all need to survive that T season without losing our mind. Taxes are important and as business owners, we need to pay them (whether we like it or not), here are our essential tax tips to help you deal with the paperwork.
REGISTERING AS SELF-EMPLOYED
First things first, if you are making an income from your blog, you should register as self-employed. This will make reporting your business income so much easier and will help you avoid the unnecessary troubles. Comprehensive information is available on the official Gov.UK website and USA.Gov website. There you can learn everything you need about the paperwork, downloading tax forms, and get advice from the authorities.
WHAT KIND OF INCOME SHOULD I REPORT?
To stay on the safe side, you should declare all compensation that you receive as a blogger in the respective self-assessment tax form. This includes:
- Income from advertising
- Affiliate income
- Direct payments from brands (clients) you have worked with
- SWAG – the freebies and products you get for review
- Income earned from selling sample items you were given (e.g. a bag you have received from a brand and decided to re-sell later on eBay)
The good news is that you only have to start paying taxes after you earn a certain amount per year. The Standard Personal Tax Allowance in the UK is £10,600, meaning if you have earned this sum or less from your blog, you don’t have to pay taxes on it. Everything above this threshold is taxable at 20%.
In the US, the tax brackets and tax rates system is a bit more complicated. According to the latest IRS provisions, the rates look as following:
TAX DEDUCTION FOR BLOGGERS
The good news is that there are a lot of things you can legally deduct from your tax bill as business expenses. All of them can be grouped into the next categories:
- Business Equipment: your computer and any upgrades (e.g. keyboard, mouse, printer) you’ve purchased this year; photo/video gear and software programmes.
- Office Equipment: Desk, chairs, stationary and all the little things you are buying for your home office. Also, if you have a separate room that you are using as your cabinet, you can deduct the associated utility payments from your tax bill.
- Communication-related Expenses: your phone bill, any paid apps/subscriptions you are using for video conferencing (e.g. Skype credits), fax machine etc.
- Marketing and Admin Expenses: Everything you have paid to subcontractors for various services (e.g. design, website support, VA services etc.); the money spent on advertising your blog (SEO services, social media advertising etc.); paid giveaways where you acted as a sponsor.
- Travel and Entertainment Expenses: Conference fees; all sorts of charges (hotel, dining, transportation) during a business trip e.g. if you have attended a meeting with a brand in another city or country.
- Professional Association Memberships and Periodicals: books, industry magazines, and online subscriptions; membership fees for being part of a certain organization; membership fees for professional groups (e.g. paid masterminds or communities).
There’s also a bunch of additional miscellaneous expenses you can claim such as costs for a professional photo shoot for your blog; postage fees; fees for professional services such as accounting and so on.
The key here is to stay reasonable and claim only those expenses, which are truly associated with the business-side of your blog. Also, it’s important to note that authorities do not like when you claim more expenses than income and may take additional steps to investigate your financials (ouch!).
GENERAL TIPS FOR BOOKKEEPING
To stay sane during the tax season, you need to come prepared. The rule of thumb is to put away 25% of your quarterly income to the “tax envelope” to avoid scraping pennies when your payment is due. Also, while you can make approximate tax estimates based on your projected income, if you miscalculate something, you will have to shell out extra cash. Again, that’s what that “envelope” is for.
Next, be diligent with all your receipts, invoices and payment-related documents. You will need all of them when filing your taxes. In our previous post, we have shared some of the best accounting apps to help you keep your records neat.
Finally, if you can afford an accountant, hire one! A professional will save you tons of time. We can’t recommend Cone Accounting enough – an accounting agency for creative entrepreneurs. Also, if you need some advice from a blogger themselves, check out Advice from a 20 Something – Amanda’s blog is a great resource for all things advice, including tonnes of posts on how to properly prepare yourself for tax season. Both will make your business life so much easier!