Graphics: Laptop with cash on its keyboard and the USA flag of the screen. The word "Tax" is in the foreground and a dollar sign under an umbrella.

Sole Proprietorship Taxes For Individual Bloggers and Affiliate Marketers.

Stacy B. Miller is a guest-writer at LiveWealthyRetirment.com
Connect with Stacy on Facebook and Twitter. She will also answer your questions and reply to your comments in the “Comments” field below this article.
Disclaimer:
Stacy has extensive experience in financial writing, but she is NOT a Certified Financial Planner or a Professional Tax Preparer. Her tips and ideas do not have the power of legal advice.
In this article, Stacy answers questions frequently asked by the individual bloggers in the United States and helps them choose their general strategy in treating their online business as a legal entity, plan, pay and report their taxes. She recommends filing Sole Proprietorship Taxes rather than registering the business as the Limited Liability Company (LLC) because unless a single-member business elects to be treated as a Corporation under LLC (which adds a lot of complexity), such a business would have to be categorized as a “Disregarded Entity” and may face similar financial liability as a sole proprietor.
Please contact your Tax Accountant if you need help with your business tax preparation.


~ Julia, the founder of LiveWealthyRetirement.com

Decorative Header Image: Sole Proprietorship Taxes For Individual Bloggers and Affiliate Marketers.

Blogging and affiliate marketing are comparatively new professions. If you look back in the past 10 years, you’ll see that many people have taken blogging and affiliate marketing as a full-fledged profession. Honestly speaking, both are lucrative professions as bloggers do make a lot of money. But what about the tax laws? How should they file tax? Are they taxed just like the traditional employees? These are a few questions often asked by individual bloggers. In this post, we will try to find out answers to these questions. 

How should individual bloggers file tax?

From the tax perspective, there is a big difference between an individual blogger and a normal employee. In case of a salaried employee, tax is withheld from his paycheck automatically.

An individual blogger has to pay estimated tax every quarter – April, June, September, and January in a year.

Anyway, let’s get straight to the main subject of discussion. Here are the steps you need to take as an individual blogger:

  1. Count and report your income to the IRS:
    Calculate and report your income to the IRS. When you’re calculating your income, make sure you include all the sources of income. For instance, monetary compensation, Swagbucks, free stuff, referral credit, etc.
  2. Calculate your expenses and deductions:
    Count your expenses and find out what you can deduct to reduce your taxable income. Check out the categories and note them down.
  3. Submit the requisite forms:
    Once you have calculated your income, expenses, and qualified tax deductions, you can submit the requisite forms, which include 1099-MISC and 1099-K. You can hire a tax accountant to do your tax returns. 

    Otherwise, you can use online software such as TurboTax Self-Employed or TaxAct Self Employed+ Edition to file your income tax returns.

Should bloggers register as an LLC or Sole Proprietorship?

A sole proprietorship is a good option for the individual bloggers when their business is completely self-financed and there are no partners. In a sole proprietorship, individual bloggers are accountable for both the profits and losses. If their business reaps profit, they have to pay personal income tax on it. Likewise, if the business incurs a loss, then they can claim the hit on the income tax return to lower their taxable income. The entire business income goes directly to individual bloggers. And, they have to pay income tax on an individual basis. 

Individual bloggers can report their income and expenses to the IRS with the form Schedule C. They have to pay their estimated tax every quarter. 

What IRS forms will they receive from affiliate companies?

Sole Proprietorship Taxes - Headers of tax forms 1099-MISC and 1099-K

Online bloggers and affiliate marketers are likely to receive 1099-MISC forms from clients during the tax season. Clients and the PayPal (payment gateway) know how much an individual blogger has earned in the financial year. Clients are most likely to send a 1099-MISC form to him. On the other hand, PayPal is likely to send him a 1099-K form for the transactions done in the tax year. PayPal has a detailed record of the total amount received in the tax year. So, they send 1099-K form to both the IRS and the blogger in the current tax year. 

What if a blogger’s income is below $600?

Usually, clients send the 1099-MISC form to individual bloggers and affiliate marketers when they earn more than $600. PayPal sends a 1099-K form when someone’s income is between $200 and $20000. If an individual blogger earns less than $600, then also he has to report the income to the IRS. He doesn’t need the form 1099 in this scenario. 

How can individual bloggers save tax?

Graphics: Laptop with cash on its keyboard and the USA flag of the screen. The word "Tax" is in the foreground and a dollar sign under an umbrella.

Recession is looming over our country. It can strike us anytime. So, it makes sense to be prepared for the worst. There are many steps you can take to sustain the next recession includes saving money.

As a blogger, one big area where you can save money is tax. Here are a few tips to do just that:

  1. Take advantage of the tax deductions: Just like the normal employees, individual bloggers are also allowed to claim tax deductions for various kinds of necessary expenses. This includes electricity, advertising, insurance, furniture, office supplies, website fees, seminars, and anything directly associated with their business. They can deduct these expenses from their income directly. If bloggers have set up an office in their home, then also there is good news for them. 

    Individual bloggers can claim deductions for household expenses like utility bills and rent.
  2. Register business in a different state: Some states don’t charge tax for S-Corps, LLC, or sole proprietorship. This is why many bloggers register their businesses in those states to get a tax advantage. But this is the wrong way to save tax. Bloggers should register their business in the state where they operate and pay tax. 

Conclusion

You won’t qualify for any kind of deduction if you have categorized blogging as your hobby. You have to pay tax to the IRS even if you earn a few dollars from your hobby. If you wish to take advantage of tax deductions, then you have to report blogging as your business and file sole proprietorship taxes. Show that you earn a profit from your business to the IRS. And, if you have reaped profits in the last 5 years, then the IRS will regard your business as legitimate. Just keep in mind that your business must have earned profits in at least 3 years.

Do you have any questions, your own tips for self-employed bloggers and digital marketers on the proper way of planning, paying and reporting taxes, or other feedback on this article?
Please use the “Comments” field below to chat with us.

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6 thoughts on “Sole Proprietorship Taxes For Individual Bloggers and Affiliate Marketers.”

  1. Hey, I enjoy a lot while reading your useful guide on Sole Proprietorship Taxes For Individual Bloggers and Affiliate Marketers. I recently started my blogging carrier and I am much aware of these taxes. Your step by step instruction is very helpful for everyone. I will also take legal advice when my income will increase. Thanks for your perfect support and help.

    Reply
    • Hi, Parveen thanks that you liked my article. All the best wishes for your blogging carrier. Its feels really good to know that you are aware of these taxes. Its very important to take professional help as and when required to be on safe side and to save money.

      Reply
  2. Oh no, taxes!  Good advice on taxes and the quarterlies.  I have been penalized over the years for not paying quarterly estimates even though I have W2 income which is the primary source.  I think people like me sometimes don’t believe they are subject to quarterly submissions.  The other issue which I believe trips up new entrepreneurs is the sales tax in all 50 states.  Make sure you have a good software package that automatically calculates the tax if you doing drop shipping or direct sales.

    Reply
    • Thank for the appreciation. Its very sad to know that you have been penalized over the years. You are right calculating sales tax for business can be a confounding process for small business owners. Yes buying a good software or taking professional help sort out this problem.

      Reply
  3. This is really a timely article, so thank you very much for posting it. One of the reasons I am glad to work with a great accountant is he handles all of this for me. I usually get very confused when trying to figure this all out on my own, so a professional is a great idea for those like me. However, after reading your post, I do feel somewhat more informed and confident with regards to what tax forms I would need. Thanks so much!

    Reply
    • Yes Steve, that’s very true if you have an efficient accountant with you then everything becomes so easy. People do get confused sometimes with all this tax laws but its not that hard if want you can do it yourself. Thanks that you gained confidence from this article and hope this confidence will help you in future.

      Reply

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