Taxes and write offs for IM

16 replies
This would only apply to people based in the United States.

This is my first year of IM. I will have to claim my Google adsense and affiliate payments, few as they were, since the were deposited directly in my account.

What can you do here?

If I sell eBooks, can I write off other eBooks I have purchased over the year? I am looking at my competition.

How far would that go? Could a family owned book publisher write off all of their book purchases over a year?
#offs #taxes #write
  • Profile picture of the author Sherry Han
    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.
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  • Profile picture of the author KingMedia
    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.
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    • Profile picture of the author JohnMcCabe
      Originally Posted by KingMedia View Post

      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.
      Although I've lived in a state with no personal income tax for several years now, I can't imagine much has changed in this regard. When I did have to file both federal and state returns (in two different states), the state followed the federal deductions, basing their reporting for business expenses on the Schedule C filed federally.

      When seeking out a tax pro, make sure you get someone accustomed to dealing with small businesses. Otherwise, you may get someone who is a whiz at doing short forms for senior citizens, but is way too conservative for your business.

      Sandy Botkin has a good book on this available through Amazon. He's a former IRS trainer and attorney. You'll be amazed at how much and how varied the expenses you can write off are...
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  • Profile picture of the author rmolina88
    This is my first year making my full time living off IM, so would I be able to write off Solo Ads?
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    • Profile picture of the author JohnMcCabe
      Originally Posted by rmolina88 View Post

      This is my first year making my full time living off IM, so would I be able to write off Solo Ads?
      Basically, you can write off any legitimate, business-related expense. Solo ads to promote your business definitely fall under that heading. Look on your Schedule C (if you're in the USA) - there's a line for advertising expenses. Solo ads would go there.
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  • Profile picture of the author Jack Gordon
    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.
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  • Profile picture of the author writeaway
    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.
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  • Profile picture of the author zombie22
    Good thread. I am new to this IM thing. Just starting, but planning to make a killing in 2013...
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  • Profile picture of the author Jack Gordon
    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.
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  • Profile picture of the author KevinDahlberg
    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.
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    • Profile picture of the author GracieLake
      The way I look at it - and I've been working for myself for many years - the writeoffs are a good reason for someone to take up IM even if they have a W2 job. These are legit expenses - educational products you buy to help your business, new computer (I bought one last year before the end of the year to take the deduction), cell phone, home office expense, and advertising are just a few. Keep a good list of your expenses or use one of those freebie phone apps that make tracking expenses easier. I use Deductr, but there are lots of 'em.
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  • Profile picture of the author seobro
    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?
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  • Profile picture of the author Jack Gordon
    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.
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  • Profile picture of the author ChrisMooreLive
    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.
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    • Profile picture of the author JohnMcCabe
      Originally Posted by writeaway View Post

      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.
      Adding even more...

      Use a single credit card for making business purchases, and don't use it for anything else. Not only keeps things seperate, but makes bookkeeping easier (and I'm in favor of anything that makes day to day record keeping easier).
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  • Profile picture of the author Lukas
    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.
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