Sunday, September 14, 2008

A Tale of Uncle Sam and the Blogger

Nothing wraps a weekend up better than writing checks for thousands of dollars and sending them off to the IRS. Tomorrow is September 15, and as you self-employed folks know, that means third quarter estimated taxes are due.

What about you? Do you pay taxes on your blogging income?

Previous polls have told me that most of you are new to blogging, and so probably don't have enough blogging income coming in to need to. Once you start making $1000 in annual income (after credits), however, the IRS considers you self employed. In other words, you owe taxes.

Here's a scenario: Let's say you started your blog in 2006. You didn't make any money in 2006, but in 2007 you made enough to owe $1000 in taxes. Because you didn't make any money in 2006, you don't have to pay quarterly estimated tax payments in 2007. You still OWE the tax. You can just wait until you file your 2007 return and pay it then. Then, since you owed taxes in 2007, you will need to make quarterly estimated tax payments in 2008 that total at least $1000. Assuming all goes well with your blog. If your blog bombs in 2008 and you don't make much money, you don't have to pay that much. You'll just pay based on how much income you think you'll have in 2008.

Despite how I think I just made that sound, paying quarterly estimated tax payments isn't really difficult once you get used to it. My husband and I are both self-employed and have been for years. We pay state and federal income taxes quarterly: in April, June, September, and December. We're solely responsible for figuring out how much we need to pay and saving enough to cover the tax bill every quarter. We also track our expenses and deductions with spreadsheets in preparation for filing our annual tax returns.

There is an alternative that will keep you from having to pay estimated tax payments: If you're employed, or if you file jointly and your spouse is, you/he/she can ask an employer to have more tax withheld so you don't have to deal with it.

For more information on paying taxes when you're self-employed, check out June Walker: Tax and Financial Advisor to the Self Employed since 1979. You'll find a ton of helpful information--much more helpful, I'm sure, than mine, since I'm not a tax professional (and shouldn't be giving tax advice). There's also some great tax-help stuff at Nolo.

If you have any questions about how I pay taxes on blogging income, ask away. I'm not shy. You can also ask on the Community board if you prefer.

photo by Tracy O