Tax Questions: Blogging Income and Deductions

Late night tax work. Don't be too jealous.

Let me start this post by say I am in no way the knower (is that a word? yes it is.) of all things taxes. With that being said I have worked in public accounting for over a year now and have prepared numerous (n-u-m-e-r-o-u-s) tax returns ranging from multi-million dollar corporations to normal individuals like you and I (well, maybe not you, but definitely I). I work for a mid-size (200+ employees) full-service public accounting firm in North Dallas. Full-service meaning we have an income tax group, audit group, sales tax group, and consulting group. I work in the income tax group. Anything accounting related, we can handle it. I am not a CPA (yet!), but do have a BBA in Accounting and am in my final semester of graduate school to obtain my MBA (woo hoo!). 
I have found there is not a lot of detailed tax information regarding blogging out on the internet. Blogging is becoming more popular and is now a way many people draw in additional income. With additional income means more tax questions.
Cassie contacted me with some tax questions and she suggested I draft a post for everyone to read. So, from the email I sent her, I have now drafted an informational post about:
"How to account for blogging income and deductions"
Since tax season is upon us, what better time than now to inform bloggers on how to account for their income and deductions! And please, if you ever have any questions, don't hesitate to email me. If I don't know the answer I am sure someone I work with will.
Let's start with 1099's If you receive income from you blog, it is likely you will start receiving a 1099. You might be used to the form W-2, so don't think this information is not needed for tax purposes. You can have multiple 1099's depending on how many sources you are drawing income from. Before you submit your return, you want to ensure you have received all 1099's from your sponsors, advertisement companies, etc.
Depending on who prepares your return, a CPA or you/husband, you may use good 'ol Turbo Tax, or you may never see the tax software and just be asked by your CPA to sign on the dotted line. Turbo Tax is great at asking you questions as you go along to ensure everything is covered. You may have to upgrade to the business version of Turbo Tax since, with blogging income, you have your own "business."
Ok to start, always make sure you save all your receipts for everything. When dealing with self-employment, Schedule C income, it is all about risk tolerance. The IRS is fully aware it is up to the discretion of the tax payer on how honest they are. You could get randomly selected for an audit, and in that case, as long as you have receipts to back everything up, you would be fine. 
Income and Deductions  This is what the meat of this post is about. And the moral of this whole section is HONESTY.  I get questions all the time like, "Are they ever going to know how much I really spent on my camera/trip/meal/paint?" They = IRS. Maybe. Everyone has a chance to get audited. Being audited means that you are the "chosen one" and the IRS is going to send someone out to look through all you receipts, financials, etc. to confirm that what you reported is actually true. "But I never keep receipts..." START NOW. 
The key to being able to deduct things for tax purposes is to have proof that you actually spent money on something for the purpose of the blog. 
For example: Chris and I went to dinner at The Mansion At Turtle Creek. I wrote about it on my blog, which is essentially advertising for the restaurant, right? No. I cannot deduct that meal expense just because I mentioned it on my blog.
NOW, say I was contacted by Turtle Creek and they said, "Hey, we read your blog, love it, and want to have you out to the restaurant so you can write a review on your blog to, hopefully, increase our traffic here at the Mansion." So, I went, ate, paid for the meal out of my pocket, and wrote a post. The primary reason I went to have dinner there was to blog about it. I didn't go for grandma's birthday or because it was Valentine's...I went because I was going to write a post on it because THEY asked me to. Does that make sense? If this were the case I would need to document the proof (in writing) saying I was asked to go eat there for the purpose of a blog review. REMEMBER: Your deduction is 50% meals, 100% travel. If our meal was $100 and it took us $10 to get there, we can deduct $60. 
This same instance goes for trips to Hawaii, or a trip to the zoo...unless you can document that the primary reason you went somewhere was for blogging, you CANNOT take that deduction. If you fly to Atlanta for a blogging conference, YES, that is deductible (50% meals, 100% travel)! Why? Because the primary reason you went the Atlanta was for a blogging conference. KEEP YOUR RECEIPTS! Taxes are all about HONESTY. I will repeat that until I can't repeat it any longer.
Home Office Deductions "Well I have a room in my house that is my office where my computer is...and I blog from that computer in my office...so I can take a home office deduction, right?" Kinda. Is the only thing you do on that computer blog? You never check you personal email, shop online, get on Facebook, homework? The chances of you using your computer/internet SOLELY for blogging are slim to none. The chances of you using your office SOLELY for blogging are slim to none. Here comes the question again: "How would the IRS ever know?" HONESTY...and knowing that anyone can be audited. Now we are going to get into some math. Everyone loves math, right?

Say you got $6,000 of 1099 income from the blog. You would put that on your Schedule C and you would be able to deduct all of the expense for the blog; computer expenses, home office space, phone, rent, camera, etc. NOW, it gets tricky because unless you can prove that your computer/home office/electricity/phone is used solely for blogging, you can't take 100% of all those expenses. 

FOR EXAMPLE: Say your house is 2,000sq ft and your office is 250sq ft, you could deduct 250/2,000 of the electricity. Say your electric bill is $2,400 for the whole year. you would then take 2,400 x .125 = $300 of deductible electricity. The .125 (or 12.5%) comes from 250/2,000. This is assuming your office is used SOLELY for blogging.

Turbo Tax will (or it should) prompt you to fill out form 8829, Expenses for Business Use. The numbers should populate...I am not familiar with Turbo Tax, so I am not sure if they automatically will. Just follow the form...

I think in Turbo Tax you will put in your total utilities, phone bill, etc. and then put in your total square footage and your home office square footage and it will automatically take 12.5% (250/2,000) of all your expenses that you enter. If your home office is only used part of the time for blogging, then that is where is can get tricky.  

You can deduct the 250sq ft as home office deduction if it is used only for blogging. If your office is used 50% of the time for blogging and 50% of the time for the kiddos homework, then 50% of the square footage of the office is deductible. If you use the internet 30% of the time for blogging and the rest for video games, playing, surfing, then 30% of the internet bill each month is deductible. Does that makes sense? If you bought a new lens for your camera, that is deductible in the year you bought it. If you bought new computer software that is solely used for blogging, that is deductible. 

See how it can be tricky?! Ahhh! If you ever did get audited, you would have to prove that 30% of your internet is used for blogging, etc. HONESTY and documentation are key.

    Key points to remember: - Your deductions CANNOT be greater than your blogging income for three straight years. Then, it is considered a hobby. So, if you make zero dollars, or next to nothing, from blogging, yet you go to conferences, and DIY hundreds of projects a year, etc. you can't take all of those deductions. That's all there is to it. If everyone got to deduct hundreds of dollars a year without having to make any money...well you know what would happen.
- This post pertains to the "larger" bloggers who make enough money from blogging that they have to report it because they received a 1099. Blogging is considered your "hobby" unless, like I said before, your income for three straight years is greater than your deductions. 
- Camera always come into question. Do you only take pictures for your blog? None are personal? You can't go out and buy a $1,000 camera and expect to deduct it if you receive no income from blogging, or at least receive less income than the amount of the camera. Like me for example, I have received ZERO dollars from blogging. I don't offer advertisements and I blog as a hobby. Personally, I never want it to feel like a "job" so at this point in my life, I never intend to bring home the bacon from my blog. With that being said, I got a camera for Christmas and 99.9% of the pictures taken have ended up on the blog. Good for you, Sarah, you still can't take a deduction for your camera because you make zero dollars from blogging. Comprende?
- I am not the knower of all things taxes. If you have any experiences or suggestions that you would like to share, please let me know!
Whewwww, that was a lot of information. I hope some of you find it helpful. Please feel free to email me questions, comments, concerns, did I mess something up (probably),does it not make sense?
And thanks to Cassie for prompting me to write up this post. I hope it helps answer some confusing questions!