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|Tax time is coming. What do you write off against your AdSense income|
Lower that taxable income!
Alright, what are the most common things that you write off against your AdSense income? Obviously there's the webhosting cost, domain registration/renewal, and payment to staff (assuming you have any).
What else do you write off against it? I made a decent amount from AdSense this year and will need to bring the taxable income portion down if I want to prevent myself from crying myself to sleep.
Obviously, nothing from this thread can be misconstrued as tax advice, but it'd be nice to have perhaps a few new ideas to throw at my tax adviser this year. Last year was bearable, but I'd like to improve on it for '07.
Let's throw some ideas around!
Excellent thread topic!
I can't really think of too many things to write off, other than the obvious. I did get a 24 inch LCD monitor this year that I'll write off (or depreciate, I guess). Generally I try not to get too "creative" lest I raise red flags at the IRS.
One thing I wonder is, if you travel to a certain desination, take notes and hundreds of pictures, then come home and build an informational web site about said location...can you write off your travel expenses? I know thousands of people have been doing just this for years, but are they writing off the expenses, and is it a risky thing to do?
|I know thousands of people have been doing just this for years, but are they writing off the expenses, and is it a risky thing to do? |
From a UK perspective absolutely anything and everything legitimate can be offset against tax and this includes travel expenses, cameras, office equipment, vehicles (I lease), bank charges, insurances, mobile phones, wages to partner, pensions, even my family has a work paid-for medical insurance...I cannot think of one expenditure I do not put through my books and never have a problem with the Inland Revenue.
Is the IRS much more stringent?
|One thing I wonder is, if you travel to a certain desination, take notes and hundreds of pictures, then come home and build an informational web site about said location...can you write off your travel expenses? I know thousands of people have been doing just this for years, but are they writing off the expenses, and is it a risky thing to do? |
That's likely to depend on whether you can legitimately expect to make a profit.
I was told to delay all ad network payment till everything sorted out. So all payments are on hold. I'm in process of forming a company; otherwise government just takes out 40% of total income.
I write off all my expenses for pencil erasers. That about covers my AdSense revenue for the year. :D
What is a "AdSense Income"? :o)...KF
In the US, you can deduct most real business expenses. Be careful with things like home-offices, business use of a personal car, and meals/entertainment expenses.
Reasonable, Necessary. Learn it. Live it.
As EFV mentioned, there has to be a reasonable expectation of making a profit -- you must be engaged in a profit-seeking business activity... at least as far as the Infernal Revenue Service is concerned.
Profit is the key, the IR will not allow an individual to run a loss-making business that claims expenses for very long.
I also claim mileage, PCs, cameras, etc etc. If you do, be sure to keep receipts and with the mileage do a belt and braces job. Record the mileometer readings for each trip and keep petrol receipts as well.
Writing off enough to put me into a loss would take some very creative accounting on my part.
I don't know whether I can justify writing off much, if any of my vehicle against it; although I will likely take out some office expenses. With any luck my tax guy will have some ideas.
I am in the UK and am considered self-employed as far as my AdSense earnings are concerned. The rules as to what you can claim against tax as self-employed are quite clear. These include such things as a proportion of utility bills, car running costs, capital write-off allowances etc.
My understanding is that as long as the claim can be justified as legitimate, and not merely a means of tax-avoidance, there is no requirement to show "a reasonable expectation of making a profit". The IR has no mandate to control how you run your business.
Father-in-law just mentioned a former boss writing off food for the home doggie - as if the puppy were a bloody watchdog of the business property :)
Having been a professional tax preparer, I've found over the years that most individuals and businesses are not nearly as aggressive as they should be in taking deductions.
When 1/3 of Fortune 500 companies are paying no taxes whatsoever, many small businesses feel threatened by the IRS only because they don't have adequate information.
Try reading "Perfectly Legal" by David Cay Johnston to get an idea of the lenghts to which the rich will go to shelter income and assets.
8 years ago, I developed a simple strategy that is available to just about any webmaster that has resulted in literally tens of thousands of dollars of federal and state tax savings.
Webmasters and their accountants need to be a little more creative and understand a few of the more esoteric rules in the tax code.
The cost of the tax accountant who told me what I could write off against it ;-)
|The cost of the tax accountant who told me what I could write off against it ;-) |
Absolutely. First and foremost.
Don't forget to deduct the psychiatrist for the emotional distresses incurred as a result of waiting for PIP every month and/or a GoogleGift.
Don't forget to take a large deduction for any bad dents.
edit: Note to self: Use the spell checker BEFORE hitting the Submit button.
[edited by: RonS at 6:17 pm (utc) on Dec. 30, 2007]
Since this is now fulltime and I have incorporated, I write off company car, office, supplies, health insurance and then sock the maximum into a SEP. Everything flows through the company. I now have employees, so I can write off unemployment costs, employee benefits, etc.
You have to think of your AdSense income as business revenue, which means you need to consider your Web site(s) a business.
Every expense a business would normally incur applies to you. Here are just a few examples:
1. Office space. Where is your office? In your home? It is perfectly legitimate to claim the space you use exclusively for business as an expense. Your tax advisor can help you figure it out. This will also include a portion of your utility bill.
2. Any and all equipment, telephone lines, DSL, cable, etc. as well as hosting fees, software, etc.
3. Dues to professional organizations, trade associations, subscriptions to magazines, journals, WebmasterWorld, etc.
4. Fees paid to consultants and contractors as well as salaries (if any) paid to your employees.
5. Entertainment expenses. You entertain your business associates and clients, don't you?
6. Mileage and travel expenses. Some people have been known to plan their vacations around business conferences.
7. Professional fees -- the money you paid your lawyers, accountants, bail bondsman, etc.
There's lots more but this should do for starters.
All of the above. Plus if you do research for your site deduct books, conferences, etc.
With a hobby site your equipment, materials etc would be included as long as you use them for the site.
I suppose I should look into the home office possibilities as the only reason I ever use my work room is to work on the site or for making examples for the site. I should ask our tax guy about that.
Thanks for getting me thinking about that possibility. I think Fearlessrick is right, most of us probably spend more on our business than we realize.
Oh yes, webmaster world supporters member dues.
If you don't need all of your business income to cover your day to day living expenses you can sock quite a bit away tax deferred in a Solo 401K plan - $15,500 ($20,500 if you are 50+) plus 25% of the business profits. If your spouse is also an owner of the business he or she can do the same.
If you have employees you can hire an actuary (the fees are tax deductible) and set up your own Safe Harbor 401K plan. Then you can hire your kids and have then put them put all their earnings in their 401K accounts, then later they can roll over their 401K money to an IRA and then use the money without penalty for college or to buy a first house.
Another deduction thay I haven't seen mentioned is long term care insurance.
[edited by: Jane_Doe at 6:14 am (utc) on Jan. 6, 2008]
Are we forgetting health insurance?
As a self employed business, its fully deductible, at least yet this year.
|From a UK perspective absolutely anything and everything legitimate can be offset against tax |
I'm not sure that's correct, is it? I have been wrestling with this one for years and I still have yet to find a solution that I am happy with.
If one is registered as a Sole Trader then any tax-deductible expenses have to be wholly for business use. If you have an expense which you use both for business and for personal reasons, it must be divisible.
So (if you work from home) the portion of electricity and lighting you use during daylight hours when you would otherwise be in an office counts as being wholly for business use.
But if you fly to Greece on for one week holiday and one more week exploring Delphos, Mystra and hiking Mount Olympus with the intention of blogging about it afterwards on your profitable, travel blog, then, no, your indivisible return flight to Athens does not count as an expense wholly for business use.
Personally, I can't really understand why the flight isn't divisible by 2 (if you're spending one week on holiday and one week working) but I have read numerous times that it isn't.
I'm still clueless. Five years ago, I turned one of my intellectual hobbies into my job, so most of my business activities are what I would be doing anyway if I had time away from the office. I don't see how I can justifiably count them as being wholly for business.
Thus, most years I end up paying tax on 99% of my turnover.
OK in the UK you have the usual things which are 100% business expenses (such as bank charges, broadband bill, webhosting, domain name etc) as well as the things that are part business expense, part personal expense eg:-
utility bills (if you work from home)
phone bill (if it's used for personal/work use)
car (if it's used for business and pleasure)
rent (if you're working from home)
In this case you work it out on a pro-rata basis:-
Example:- You use one room out of an eight bedroom house solely for business purposes. Your rent is 80 pounds a week. So, the business has an overhead of 10 pounds a week for rent for that one room.
You run up 20,000 miles on your car, however you've kept a log of mileage used for work purposes and it comes to 10,000 miles you've travelled on work purposes. You can therefore claim 50% of the expenses of running the car as an overhead (as well as an element for depreciation of the asset, if it's owned by the business)
As to others (such as phone bills) where you're not sure of the exact amounts, generally an estimate is made.
You see you're only taxed income wise on profits (turnover-overheads), not turnover (income tax isn't like VAT), unless your turnover is above the VAT threshold. If you're not claiming the overheads you're legitimately entitled to claim, then you're (assuming you do pay tax) overpaying tax each year.
However of course in such matters you should ask an accountant, but I think they would say broadly the same thing!
Disclaimer:- I used to study accountancy until I found it so mind numbingly dull I quit. Also this applies to the UK (where our financial year runs from April 6th to April 5th, the US runs on a calendar year basis from what I remember although I may be wrong).
From my income, 2/3 is AdSense, 1/3 internet promotion.
My car is 90% company used, in this senese, 60% AdSense used
About 60% of my total turn around is declared as expenses.
All my travels to fairs for example.
I tried to deduct 'research & development costs' for programming and website info. My accountant said NO!
What a useful thread. My experience is again from the UK.
What you don't want is to prompt the Inland Revenue into an aggressive investigation into your business and personal finances - so be realistic and they play ball with.
Most of my income is from Adsense, and in some ways this makes it pretty transparent. You only have a single customer - and Google pays you monthly. You bank accounts show where the payment was made. I do everything online and so the paper trail is short. The Revenue deals with all sorts of businesses that are peppered with accounting problems. We are easy to deal with.
I pay an accountant £250 - £400 per year you write up my accounts, to verify them and they also write out my Self-Assessment forms.
So this week I had all of my accounts and the Self-Assessment forms through the post for me and my partner, with crosses on where to sign - and a SAE to return it. Of course I go over the forms, but is very simple and quick.
An as we swapped from a partnership, to a LTD company last year - I'll even get a refund for Her Majesty!
As to the sole trader (or partnership) or limited company question, whether it's worth it or not depends on your profits as limited companies are taxed differently (but you do encounter some extra running costs regarding fees with Company House) & the question over whether to incorporate or not for tax reasons is best addressed to an accountant.
From what I remember income from a limited company (here in the UK) to a shareholder is taxed as a dividend, which depending on the profits of the limited company can result in a lower overall tax bill (even when you take into account the extra costs of Company House fees) than a sole trader or partnership. Also the limited company is classed as a seperate legal entity in its own right. Sole traders (and partners) are liable for the debts of their business should things go wrong. Limited companies have a limited liability for debts should the company become insolvent.
Anyway, this is probably at a far, far later stage than most people's earnings from Adsense are and it only applies to the UK (I think the original question was aimed at US taxpayers).
My tip for the UK. If your self-employment earnings are less than a certain amount (10K? 15K?) the IR is likely to send you a 'short' tax return form. The full form is better as it allows you to work out your own tax liability, combining your self-employment income (or loss) with your other income. All the IR has to do is check it. But the 'short' form does not allow you to do this. I only used one once, but never again as I had a struggle getting the IR help desk to get their sums right.
When it comes to claiming business costs, I claim for just about everything, but my golden rule is that I never claim anything that I would feel uncomfortable justifying in a face-to-face interview.
The short form limit on turnover is 15K and basically just asks for 3 figures, turnover, overheads and profits.
If you actually file online, see this part of Her Majesty's Revenue and Custom's site (new name for the Inland Revenue after their merger with Customs and Excise) [hmrc.gov.uk] the software automatically calculates the figures you'd have to input manually if you were doing it yourself, making it far quicker to complete.
However even on the short form you do have to declare earnings (if any) from employment and these are combined with your self employed earnings to see if you've underpaid (or overpaid) tax & NI.
As to IR help desk's *sighs*, even my local tax office has got things wrong on occassion, telling me I'm not entitled to something that I was (they did send me about £1,000 in giros after a few years of it wending its way through the bureaucracy). So to be honest with you, the tax code is so complex you can't expect even the employees to be totally au fait with it.
If you're self employed it's up to you to "get your sums right", I'm sure if there are obvious errors in your return they'll be pointed out and it'll be returned to you anyway. :)
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