For my regular travel readers who are not bloggers, you may want to just skip over this post.  It has nothing to do with my usual subject. Regular programming will return soon.

This one is for bloggers everywhere.  Everywhere in the U.S., that is.  It’s for every blogger who has ever thought they can deduct expenses and not pay taxes on this little hobby called blogging.

I’m attending the I_Blog Conference, a small blogging conference at the lovely Hotel Pattee in Perry, IA, which has been planned by Jody Halsted of Iowa Geek and Have Kid Will Travel Fame.  This conference may be small in the number of people attending, but it’s huge in the amount of useful information that bloggers can actually use.

Yesterday, a very interesting and somewhat-nervewracking session was put on by B.J. Weber of Ankeny Tax and Accounting entitled “Understanding the Tax Issues of Blogging.”  Truth be told, this specific workshop is one of the primary reasons I drove 5 hours to attend the I_Blog conference.

I live-tweeted the session under the hashtag #iblogconf, but there’s a lot of twitter action under that hashtag, so I will attempt to synthesize the information as I understand it.

First of all, let’s get one thing clear.  I’m a blogger who took notes at a session.  I, personally, am not an accountant.  I am not a lawyer.  I’m doing my best to explain what I heard.  Always check with your own accountant for specific tax advice.  And if you don’t like what I’m reporting, call the IRS and ask your own questions.

The next disclaimer is this:  As B.J. said, the IRS is constantly evolving.  They reserve the right to change the rules at any time.  And sometimes what one agent tells you will be refuted five minutes later in another phone call to another agent.  B.J. contacted the IRS numerous times in preparing for this conference, and his information should be accurate for today.  Tomorrow things might be different.  Nothing is set in stone.

The primary distinction that must be made when deciding whether or not you can deduct expenses as business expenses is this:  Are you operating a business, or do you have a hobby?  If you can meet the criteria for being a business, you can write off legitimate expenses, even if operating at a loss.  But if you’re a hobby blogger per the IRS definitions, and you write off expenses, showing no taxable income, especially if done year after year, you’ll be holding up a red flag for the IRS auditors to see.

Like in the FTC ruling, bloggers seem to be just now coming on to the IRS radar, so B.J. asked some specific questions about bloggers and taxes when he talked to the agents.  What he found out wasn’t very popular with the audience.  You may not like it either.  But here goes.

Taxable income to the blogger can be in many forms:  sale of products from your blog, affiliate commissions, paid reviews, and free products for review.  Yes, I said free products for review.  If you receive products for review, or freebies from companies, you have to keep track of that as income.  Even if you give the product away.  If it comes into your hands, the IRS doesn’t care what you do with it, you must claim it as income.  At fair market value.  That means “suggested retail price.”  So that book that you’ve agreed to review, with a $17.99 price printed on it that you can pick up for $8.99 on Amazon?  You have to claim $17.99 of income for it.  (If you get something in the mail that you don’t want to claim as income,  immediately send it back to the sender.  If you want to give something away without claiming it as income, have the prize sent directly from the company, leaving you out of the loop.)   That free vacation or cruise or daytrip that you got as a travel blogger?  You need to claim the fair market value of everything in that trip:  airfare, hotel, admission, incidentals that you got for free.  At fair market value.  If your host doesn’t give you a fair market value, you need to do your homework to find out what those freebies would have cost a paying person.  And you need to claim all of those things as income.  (You may also be able to claim expenses that you incurred as part of the trip.  Keep track.)

Wow, right?  Yeah, we didn’t want to hear it either.  We also got nervous at the thought of the record-keeping involved.  What did you get? From whom did you get it?  When did you get it?  What’s the fair market value?  Keep track of your income, bloggers, even if you never receive a penny of cash.

So that takes care of income.  Now what about those expenses?  If you want to write off blogging-related expenses dollar-for dollar, you’d better be a business, not a hobby.  By the IRS guidelines, not by what your best friend or mom thinks.

Factors that go into the business/hobby determination have to do with intent and profitability.  If you’re spending a few hours a day blogging after your full-time job, and you’re not really in it to make money, you’re likely a hobby blogger.  That’s fine, but then you can’t claim those dollar-for-dollar expenses.  (You may, however, be able to use Schedule A deductions after your 2% AGI limitation; talk to your tax professional about exactly how this works.)

If you quit your job to do this blogging bit and your family depends on it as income, you might better be able to legitimately claim a loss for the year, especially if it it looks like you’ll be profitable in coming years.

If you’re making some taxable income after deductions, even if you work just part-time on your blog, and even if the taxable income isn’t much, then you’re in better shape.  The IRS likes taxpayers who have income and pay taxes on it.  (And now that you’re keeping track of all those freebies you received, you may actually be making more “income” than you ever dreamed with your blog.)

The IRS has guidelines on determining if you’re a business or a hobby.  See Business or Hobby? Answer Has Implications for Deducations and Eight Important Questions for Hobbyists for details from the IRS in helping you make this determination.  You want to choose correctly, because being audited isn’t fun and if you lose an audit, you’re going to feel it in your pocketbook.

So now, you’ve decided that you are a legitimate business and that you can deduct expenses.  Guess what’s next?  Recordkeeping.  It doesn’t matter if you do it on paper or on your computer, you need to have some way of keeping records of your expenses.  Legitimate business expenses (not that new TV, or personal travel or meals, or outrageous payments to your kid for their “work” for you) should have receipts.  Scan or copy the receipts because they’ll fade over time.  Keep a mileage log in your car that includes what, where, beginning/ending mileage, and whether personal or business for each trip.

Document everything.  Keep records.  Know and follow the IRS guidelines.

Hire a tax professional.  They know the rules and will help you in an audit.

An audience member remarked that perhaps it would be better to pay a little more tax by remaining a hobbyist than to try to deduct that new computer you just bought for your blogging.  This is something you have to decide for your own situation.

So there you have it: my paraphrasing of the information learned from a tax professional at the I_Blog Conference.  I invite your discussion, but please reserve specific tax questions for your tax professional.  I’m only reporting what I learned.

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