Taxes and write offs for IM

I'm not an accountant so I can't advise you on a professional basis, but if those books you purchased were used for business purposes, then I don't see why they can't be written off.

My CPA is very liberal with what he writes off for me, legally of course. Many WSO's, books, and training programs that I buy are considered business expenses. After all, I didn't buy those for my personal enjoyment.

Each state/city is different. Best to seek out a good tax person or CPA in your area. Well worth the cost - and if Uncle Sam comes knocking... let the tax/CPA person take care of it.

This is my first year making my full time living off IM, so would I be able to write off Solo Ads?

No need to overthink this topic. There are just a few simple rules.

1) Practically anything that you have purchased in the course of running your business can be a writeoff. This includes relevant books/ebooks, office supplies, overhead (but be careful about writing off private office space in your home, there are special rules there), travel/conferences, client entertainment/gifts, marketing/advertising expense, outsourcing (get 1099's from outsourced talent over $600/yr), etc

2) It will be much easier (and cheaper) to do your taxes if you treat your business like a business. That means registering as a business, becoming an LLC (or a sole proprietor, or something else comparable), setting up a dedicated bank account and running all business finances through it, paying taxes on all income you take from the business, keeping all receipts neatly organized and running everything through an accounting program (even a free one).

3) Always, always remember that free advice on an internet forum is worth about what you pay for it. Get a CPA with similar clientele to do your taxes, as they will know where to draw the lines and they can absorb liability if they get something wrong. You'll pay a few hundred dollars, but it will be well worth it.

Rocket makes a great point. To add on to it a little bit: use a credit card for making business purchases. This makes it easier for you to track your expenses and categorize them come tax time.

Good thread. I am new to this IM thing. Just starting, but planning to make a killing in 2013...

I'll share a personal experience...

In my first business, I was 10 months in before realizing it was taking off. That was the moment I realized I needed an employee to help me.

Having an employee led to needing an accountant, because I had no clue how to pay employee taxes.

Having an accountant led to the need for me to go back through 10 months of receipts, papers, memories, etc., many of which didn't exist anymore, trying to reconstruct exactly how I had gotten to where I was.

It was all the more complicated by the fact that my business had been completely intermingled with my personal records for the whole time.

Going to all of that effort taught me, the hard way, that it just isn't worth it when you can avoid it all by doing things right the first time.

That doesn't mean you have to pay for an accountant. Separating a professional account from your personal account, keeping track of all expenses and income, and treating your business as an entity completely independent of your personal life is really not hard to do. But it will make all the difference when and if it grows to the point where you have to fly above the radar or face big troubles.

I'm pretty intimidated when it comes to tax season this year. It will be my first time with income from being self employed. I've saved as many receipts as possible and done my best to keep track of expenses. I know for a fact that I'm going to be doing a lot more separating in 2013.

I would be very careful if I were you. Well, I got fined for declaring Google Adwords as an expense. Actually, my accountant did tell me to exercise some care. They do not like to see any expenses. Basically, they do not understand why I have to spend $900 in advertising for every $1000 in profit that I get, but there you go.

Already I know better than to deduct my laptop and paper. They will allege personal use. Still, how can Google adwords ads for products I am selling be personal use?

seobro,

If you were not able to declare adwords as a writeoff, I suspect you are not doing this right.

Are you an LLC, sole proprietorship, or something comparable? Or are you just doing this as a hobby? If you are not a business in the eyes of the IRS, then I can see how you would have a lot more trouble.

Hence, the advice OP has been getting.

Even if you are sole proprietor, you need to keep a separate bank account for you business and use Quickbooks or some other accounting program to keep up with everything. Most of my businesses are set up as LLC's that do not pay corporate taxes. Keep good records. Deduct everything that is a legitimate deduction. It's not a crime to lose money. Your risk of being audited is very low until you start making significant income, but audits aren't anything to be worried about as long as your really spent the money, it was 100% for your business and not just spending on a hobby, and you were trying to make money.

The IRS will declare your business a hobby if you keep taking deductions, but do not make any money after a few years. Hopefully, you'll start making money soon.

Find an accountant to help you get your record keeping set up and them see them at the end of the year for your taxes.

seobro, you don't deduct your laptop? it is mainly for business use for me just like licensed appraisers and real estate agents use their car a lot. A laptop is NOT the same as having eyeglasses for personal use. I use it as depreciation on form 4562. The details tell you how long to depreciate it. I think somebody advised you wrong on that one.

What is everyone's typical deduction percentage to their gross income? 20, 40%?
maybe it depends on how well of a marketer you are

This year was a doozy due to Penguin. I spent a lot and got little in return. I think they will see I made $7k less in adsense than previous year as the cause.