Katsbiz Internet Marketing Blog

Tax Information and Deductions About Adsense and Other Online Businesses

These Tax Deductions are aimed at U.S. internet marketers. Keep in mind, these go hand in hand with your personal tax situation. Consult a tax attorney or other tax professional in your area. Being aware of your tax situation all year is a must. Just by paying a little attention and learning the basic tax code, you can save thousands in taxes. It is your hard earned money, this money should be in your pocket, or in a interest bearing account.

Google Adsense and Similar Programs

Google Adsense is required to collect tax information from those who participate in the program. If you’re a business, you’ll need to put your EIN number on your application. If you’re an individual, all you’ll need is your social security number. If you don’t have that information when you initially sign up, you can still apply for the Google Adsense program. But be advised that Google Adsense will withhold payments to you until they receive your tax information.

While Google does not withhold taxes or provide any tax advice, they will send you a 1099 once your earnings reach a certain amount. Of course, if you are a Non-US business and have no activity in the United States, you will not need to provide this information. For more tax information regarding the Google Adsense program, visit the Google Adsense Support site. For other tax-related questions or concerns, you can log onto irs.gov. Google will also send a copy of the 1099 to the IRS, so you must report this income and pay taxes on it.

Software, Computers and Other Hardware

If you use your computer for 100% business, you can deduct the full of the cost of your internet service, phone, computer, printer, fax machine and copier, even your computer desk and other equipment. Say the PSU went out on your business computer. The entire cost to repair the PSU is deductible. Bought memory? Yep, tax deductible. You can take the section 179 deduction or depreciate the equipment. Software you buy for your business, your web hosting fees, domain registration fees, and the cost of ads you place across the Internet are also tax deductible.

I stress though, only the business costs can be deducted, nothing for personal use. For example, if you use your computer for 75% business and 25% personal use, you can deduct 75% of your yearly internet bill. If you have an online business, it is vital to keep accurate records. I would suggest keeping a log of hours you spend on business and personal use, like pizza delivery people do for driving, or should do.

Membership Site Fees

If you promote your business through traffic exchanges or safelists and you pay for upgrades or buy credits, these are also tax deductible. Membership fees for sites related to your business are also deductible. For example, say you sell PLR or Resell Rights products as your business, and you pay a membership site $29.97 a month for your products, you can deduct those fees. If you buy website templates and graphics for your business site, those are also deductible. Fees for payment processors are also deductible.

Home Offices

For a room to be considered a home office, it must be used 100% for business purposes only. No tv’s, radios, or hanging clothes in the closet, no sleeping in the room, nothing but business, or it will not be allowed. The IRS has really cracked down on this in the past couple of years, and a preparer who uses due diligence will not allow the deduction. I know I won’t. If you also deduct your mortgage interest, it is even more important. If you do this properly, you will receive a great tax benefit.

Put Money Off to the Side

If you make most of your money online, I would suggest putting away at least 20% of your earnings for taxes, more if you start making high 5 figures or higher. Of course, this depends on your personal tax situation, like state or city income taxes, filing status and dependents. Myself, I’m single, live in Florida, so my returns are pretty easy, and for now, I only need to put 10% away. One last thing, and I cannot stress this enough: the vast majority of the time it is better to file Married Filing Jointly instead of Married Filing Separately. This is true even if only one spouse has earned income.

Keep Your Records

Always keep detailed records, and keep them organized, which is very easy to do. Make the records on your computer, print them, and also burn the files to a CD or DVD, and label them properly. I suggest keeping the records for at least 3 years, but 5 is better. If you make 6 or 7 figures online, I would keep the records even longer. When tax time comes around, you will be very well prepared, and you will get the best tax benefit possible. And if the IRS does an audit, you will have the records to prove your deductions are legit.

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