B is for blogger but it is also for business owner. If you earn money from your blog and blogging isn't just a hobby for you, you need to keep track of your income and expenditures. The more organized you are up front, the easier your job will be at year-end when you have to pull it all together for income tax purposes.
This post is targeted to the sole proprietor who works from home in the U.S. and has no employees. Translation: It's you, only you, and nothing but you. In your PJ's. If you don't live in the U.S., most of the basics still apply so read on.
SET UP AN EASY-TO-USE SYSTEM
Step 1: Open a business checking account.
The easiest way to track your business income and expenses is to keep your business funds separate from your personal funds. For example, you may have a checking account, a PayPal account, and a credit card account that you use solely for business.
Step 2: Use personal financial software.
Financial software like Quicken and MSMoney make keeping track of your business and personal finances a breeze. They are designed for easy setup and the best part is that you can download your bank, investment, and credit card activity directly into your software. No more manual data entry. Later, as your business grows and you graduate to a bookkeeping software (e.g. Quickbooks), these files easily import.
If you want to try your hand at preparing your own tax returns at year-end, there are also some great tax software programs like TurboTax and TaxCut that import your tax information from your financial software.
Step 3: Hire an accountant.
Why try to figure it all out for yourself when you'd rather be blogging? Pay a CPA to prepare your income tax returns and answer your bookkeeping questions. It will be money well spent. And you can deduct it.
KNOW WHAT YOU CAN DEDUCT
It is impossible to talk about bookkeeping without also talking about income taxes, at least in the U.S., because things you pay for aren't necessarily deductible as expenses. The money you earn from your blog is business income but the expenditures you make may be:
- Business expenses
- Business asset purchases
- Business loan repayments (someone actually loaned a blogger money?)
- Owner draws, or
- Personal expenditures (which are also classified as owner draws)
Tags: blogging, bookkeeping, record keeping, small business, taxes
Business expenses include (but are not limited to):
- Advertising for your site (Adwords, Overture, etc.)
- Auto expense (fuel, maintenance, tires, etc.)
- Books and periodicals on blogging or your blog topic
- Continuing education (conference fees, self-study materials, exam fees, etc.)
- Dues & memberships (must be business-related, i.e. no golf memberships unless perhaps you are a golf blogger)
- Insurance (other than health)
- Internet access fees (cable/DSL, ISP, etc.)
- Office supplies
- Outside services (fees paid to someone who provided a service, e.g. website design)
- Printing and reproduction (business cards, copy service, etc.)
- Professional fees (legal, accounting, tax preparation, etc.)
- Repairs & maintenance on business assets
- Rent or lease (office space, P.O. box, business equipment, etc.)
- Subscriptions to magazines, newsletters, or other resources on blogging or your blog topic
- Taxes & licenses
- Telephone / cellular bill (business portion only)
- Travel & lodging
- Website costs (domain names, web-hosting, etc.)
Business asset examples:
- Computers & computer hardware upgrades
- Networking equipment
- Software for your business, including upgrades
- Printers
- Scanners & copiers
- Fax machines
- Digital cameras
- Video equipment
- Sound equipment
- Office furniture
Personal expenditures and owner draws:
Personal expenditures paid from business funds are considered owner draws. You are drawing money out of your business for personal use. Keep this activity separate from other expenditures but don't just lump it all together. Some personal expenditures may be deductible on your personal income tax returns so track them for easy identification at year-end. Two tax-related personal expenses I often see paid from business funds are owner health insurance premiums and income tax payments.
Items used for both business and personal use:
Keep track of business-use on items that you also use for personal-use. You can deduct the business-use portion:
- Vehicle: Keep track of business mileage, preferably via a log book, so at the end of the year you know the breakdown of total miles between business, personal, and commuting miles. Business mileage is more than just business trips. Trips to the store to buy business supplies count too.
- Cell phone
- Home office: This one isn't a business vs. personal percentage calculation. It is either/or. You qualify for the home office deduction if you use a portion of your home exclusively and regularly as your principal place of business. If you qualify, you can deduct a portion of your rent or mortgage as well as things like land line phone bills, insurance, and utilities that are not normally deductible for tax purposes.
Final steps at year end:
- Gather up all your records and tax forms and take them to that accountant you hired at Step 3.
For more How-To's, visit Problogger's latest group writing project. Entries so far: Part 1, Part 2.
Tags: blogging, bookkeeping, record keeping, small business, taxes
