Tax Filing Tips & Deductions for Internet Marketers

Posted on 09. Feb, 2010 by Holly in Make Money, Resources

If you work online in the United States and you are making money, you’re most likely preparing your taxes now or have done so already. If you haven’t, or if you are confused about what you may or may not need to do – the information here may assist you. As a disclaimer, let me state that I am in no way a tax consultant and although I am offering some personal advice from my own experiences, I recommend you seek out information from a real tax consultant or accountant if you need help. I am not responsible for any of your tax decisions.

Are You Self-Employed?

According to the IRS article here, you are self-employed if either of the following applies to you:

You carry on a trade or business as a sole proprietor; or
You are a member of a partnership or limited liability company that files a Form 1065, U.S. Return of Partnership, that carries on a trade or business.

You are also self-employed if you have a part-time business, in addition to your regular job. I think many Internet Marketers who are starting to make money online would be considered sole proprietors.

Estimated Quarterly Taxes

In general, as a self-employed entrepreneur, you are supposed to pay estimated quarterly taxes. If you are reading this article, you may have missed doing that altogether. If you didn’t know you were supposed to pay estimated quarterly taxes, you can pay all your taxes at the end of the year.

1st payment should be sent in before: April 15 of that year
2nd payment should be sent in before: June 15 of that year
3rd payment should be sent in before: Sept. 15 of that year
4th payment should be sent in before: Jan. 15 of that year

Please refer to form 1040-ES here for full instructions on the estimated quarterly tax payments.

Affiliate Networks & 1099-Misc. Forms

One topic which has sparked a lot of confusion is about whether or not major affiliate networks are sending out 1099-Misc. forms to those who are earning money as an affiliate or vendor. From personal experience, I can tell you that Clickbank does send out 1099-Misc. forms for affiliates who have earned more than $600 in the year. For me, I am both an affiliate with Clickbank and a vendor (I sell Honest Riches) – but I did not receive a 1099-Misc. form for my vendor earnings. Why? I have no idea – but even though they did not send that out to me, it is my responsibility to sort through all my income and earnings as a vendor. Even though Clickbank did not report my vendor earnings (which were substantially larger than my affiliate earnings that they did report), I must report it to the IRS anyway. You can read Clickbank’s accounting policy here. It is a lot of work to go through the past earnings, month by month to see how much was earned, take note of any refunds, then calculate all the payment processing fees. If you are a vendor, be sure to login to Clickbank and search through your old reports, month-by-month to get those numbers. With most other affiliate networks I work with, I have received all of my 1099-Misc. forms in the mail already.

Self-Employed Tax Credits and Deductions

There are numerous tax credits and deductions that can help you, as a self-employed person. Here is a basic list, and most of these are handled on your Schedule C tax form.

Website Expenses, such as web hosting and domain name purchases
Internet Access
Any purchases directly used for your business, such as; printer, computer and desks
Advertising costs, such as; Google Adwords or other link-building or advertising methods
Office Supplies, such as; paper, files, pens, ink
Donations to non-profit organizations
Home Office Deduction. If you work from home, you can deduct the costs associated with maintaining an exclusive home office on form 8829. You can include a portion of real estate tax, mortgage interest, insurance, maintenance, utilities, office furniture, and depreciation.
Retirement Contributions. Contributions to a solo 401k or other qualified plan are deductible on line 28
Self Employment Tax. Half of the self employment tax you pay can be deducted on line 27
Contract Labor. Independent contractor’s that you hire to complete work, those who are not employees – and the payments can be deducted
Health insurance – You can deduct the full cost of health insurance you purchase for yourself, your spouse, and/or your dependents. You must be self-employed, and you must not be eligible to participate in a group health plan.

Important Tax Filing News from Paypal

According to Ken Swab, senior federal government relations officer at PayPal, when Congress passed the Economic Recovery Act of 2008 – a provision contained within it will affect PayPal users in the future. According to the PayPal blog here, This legislation applies to all payment providers including PayPal and takes effect in 2011, so the first reports will go to the IRS in January 2012.

PayPal will be required to report to the IRS the total payment volume received by PayPal customers in the U.S. who:

receive more than $20,000 in payment volume in a single year; and
receive more than 200 payments in a single year.

For more information, please consult a tax expert who can assist you properly. Personally, I have become extremely organized in my attempt to simplify the tax process I go through each year. I created numerous files, with labels – to keep track of business expenses, tax-deductible donations, health insurance payments and everything else you can imagine. It is a lot less stressful when things are organized!

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Tags: 1099-misc, clickbank 1099, deductions self-employed, estimated taxes, paypal taxes, quarterly taxes, self-employment credits, taxes self-employed

9 Responses to “Tax Filing Tips & Deductions for Internet Marketers”

Jerry

09. Feb, 2010

Ok, you’re going to do my taxes next year! You are as good as a tax consultant. This is a really good blog post Holly with a ton of useful information. I just completed and filed my taxes last weekend and I can say you covered pretty much everything I encountered along the way.

Last year I did not try to finish my taxes until April 13th – and I ran into problems that forced me to file for an extension- which by the way does not allow you more time if you are paying in, or at least not without penalty. One thing that really amazes me is that the write off for my home office is so small! I list it as 188 square feet and then based on the value of my house plus the cost of utilities the write off is calculated as a percentage. I think the write off only came to $650 off of my adjusted gross income. One deduction that the IRS really gives you a break on is vehicle mileage – So basically even though I have a home office I am able to deduct 55 cents per mile for traveling to get office supplies, equipment, any networking events, etc.

With Clickbank I just went to the reporting tab and it shows what the sum of my 2009 paychecks was for each of my accounts. Commission Junction has mailed me a 1099 every year since 2006, which is good. Anyway, great post, great advice, but back to work I go! Thanks, Jerry

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Holly

09. Feb, 2010

Hey Jerry – sounds like you have it all under control – that is great you have it all done already (unlike me). There is one thing I noticed, although it is too late to help you now – for next year it may help you. Clickbank does post the total earnings for the year – but if you earned more than $600 as an affiliate, you would have received a 1099-Misc. from them. If you are also a vendor, and are doing your taxes – you would have submitted your 1099-Misc. details when doing your taxes.

Then, if you go into clickbank and just take that number they give you as the amount you earned in that year, it will include all your earnings – both as an affiliate and vendor. So, you don’t want to be taxed twice on some of the earnings. You can take the total amount they put on there – then subtract the amount they put on your 1099-Misc. for affiliate earnings – then you have all your vendor earnings. It sounds complicated – but I overlooked this in past years. Also, you should calculate the processing fees as that is also needed when doing the taxes. It is all so confusing!

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- Gary
  
  09. Feb, 2010
  
  Hi Holly…. Do you do Canadian Taxes as well? lol I just bought your E-Book the other week and I am just about ready to proceed with setting up a web site… I can’t wait to start.
Jerry

09. Feb, 2010

I forgot to add one thing. ClickBank will not send out a 1099 to anyone who enters an Employer Identification number on any account instead of a Social Security Number – I got a 1099 in 2006 but got an EIN from the IRS in 2007 and after entering it into my clickbank accounts never received another 1099.

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Holly

09. Feb, 2010

Thanks Jerry – that is useful to know. And Gary – you’re funny! I’m actually going to a tax consultant this year to go over things and make sure I’ve done it alright

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Jerry

09. Feb, 2010

Hey Holly, I was posting the EIN thing while you were posting. OMGosh, I see what you are saying! I am digging through my 2006 files now to see what I did! I received 3 1099 forms from ClickBank in 2006 because I only had my social security number listed but those 3 accounts were also vendor accounts and had vendor sales. I know at one of the accounts did well with vendor sales but not so much the other two – I know I listed the vendor sales on my biggest producing account but I am not sure about the other 2! And since then I entered the EIN on all my accounts so I report all the income myself because I do not receive any 1099 forms. Hope the IRS does not read your blog:)

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Jerry

09. Feb, 2010

Ok, I just went through my 2006 stuff and thankfully I reported all income! I was freaking out for a minute there…I am really glad you posted that Holly because it will save someone from filing wrong or being taxed twice. Here is what clickbank emailed me in 2007 when I asked for 1099 forms:

“In accordance with IRS regulations, 1099’s are only sent to individual accounts reporting under a SSN that earned over $600 in affiliate commissions (not including direct product sales) during the calendar year. In your case, your use of an EIN on your accounts essentially removes our 1099 reporting requirement to the IRS. For your convenience, you can see the total amount of payments made to you during the year on the top of the reporting page in your accounts, for use in tax purposes.

Regards,

ClickBank Accounting
===============================

Essentially after you get an EIN you are considered a company and required to report your own earnings. I personally would recommend to those working online to register as an LLC to protect your personal assets and limit your liability to only that of your company- I did this 3 years ago and it initially cost me less than $200 by filing the forms myself.

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Irish Tom

10. Feb, 2010

A great article Holly. I am fairly up to date with your system here (as I used to be an accountant), but you do have some strange rules we did not have in Ireland!!.
I have printed this off and will be able to use it.
Good luck with your own taxes and may you receive a very substantial refund…you deserve it..LOL..
Thanks again…

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Jacinta Dean

20. Feb, 2010

Hi Holly,

Really interesting article. It sounds like the US and Australia are quite similar with their tax systems. Taxes is not a strong point with me and I have a father who is an accountant!

However in saying that I do recommend people actually interview their accountants. Most people will go to an accountant fairly trusting and just believe what they tell you. I learned the hard way when I was operating 2 offline businesses 10 years ago. My accountant at the time completely buggered up my taxes and I ended up with a bill of over $30,000. This ended up nearly bankrupting me. I had to take my accountants to a different accountant and have everything re filed.

The damage was however done I ended up with creditors trying to bankrupt me and lost my businesses due to the stress of the accountants mistake and the creditor and government crap! and ended up bankrupt.

Make sure you interview your accountant before you trust them with your finances. Ask them questions, lots of them. Do your own research as well! Remember when you sign your documents you are also relieving them of any wrong doing which means if your accounts are wrong it is your fault and not the accountants!

Just thought I would add my 2 cents.

Jacinta

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