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The best way to figure all this, if you don't want to hire an accountant, is to use a program like TurboTax or TaxCut, which will ask you a series of questions (the "interview") and do all the form-filling and calculations for you. The process is fairly easy, and it has one advantage over sitting in the office of a human tax preparer: Whenever you realize that you need to dig out some more records, you can save the interview and return to it when you've located the materials that you need.
The IRS has a "Small Business and Self-Employed One-Stop Resource" at:
It really is a bit of a no brainer. If it is income it is taxable. I am in the UK but I would assume that this applies just about everywhere except Outer Jibrovia.
Most municipalities require almost all businesses to get a yearly liscense. You might also be required to get a one-time zoning approval.
"Most" is probably an overstatement, and in any case, blanket advice isn't very meaningful on a forum that reaches people in thousands of cities and scores or hundreds of countries.
Depending on the country, state, and community, some types of businesses may be regulated while others aren't. (For example, a city might require licenses or zoning approval for businesses that are visited by the public or that have employees working on the premises, but work-at-home freelancers might be exempted. Also, in U.S. cities, writers and publishers may be treated differently from other home-based businesses, depending on local interpretation of First Amendment rights.)
efv, correct me if i'm wrong: are you saying that using schedule c to report adsense income is an alternative to paying self employment taxes?
No, you'll still self-employment taxes (the self-employed person's version of Social Security/FICA taxes), but they'll be based on your profit--if any--as calculated on Schedule C.
Let's say you've got a job at a company that pays $50,000 a year. You pay Social Security (FICA) on that $50,000.
During your spare time, you create a Web site that earns $10,000 in revenue from AdSense, affiliate sales, or whatever. You declare that $10,000 on Schedule C, on which you also list $1,000 in legitimate business expenses: domain fees, hosting fees, related software, the "How to Become a Web Millionaire" book that you picked up at Barnes & Noble, home-office expenses (though these can be trickier), etc. The net after deduction of expenses, or $9,000, is your profit. You pay self-employment and income tax only on that profit, not on your gross revenues before deduction of business expenses.
Again, TurboTax or TaxCut will make it very easy to figure all this out. You just answer questions in an interview, and the program does the calculations on the proper forms.
It seems to me that people who all of the sudden are earning revenues from their websites (presumably earlier run on a part-time or hobby basis) and are wondering how to record it on their national taxes might want to consider that they now also have local liabilities.
I never said or meant that every locality will impose taxes and regulations on these ventures. I never said or meant that if the locality does impose taxes or regs everyone should adhere to them.
My main point is that it should be a consideration if you are starting to generate some significant revenue. If you live in an isolated rural area, or tax liberal country, give it about three seconds of consideration. If you live in a highly taxed or regulated locality, give it more consideration.
There definately seem to be people out there who in 3,5, etc years time or going to find that they have outstanding local tax liabilities from their websites which include hefty penalties for backtaxes. Thought some of these people might want to try to avoid this.
What we did is we made our company an s corp, takes away most personal liabilities, and you get a tax advantage on the portion of income you claim as profit as opposed to salary. Also you don't get penalized by having to claim any of it as self-employment and pay those extra taxes.
I would suggest going to a lawyer like we did to set it up though, definately worth the cost for us.
In the United States for it to be considered a business and not self empoyment don't you need an EIN number?
A sole proprietorship (self-employment) is a business. Normally a Social Security number is all the taxpayer needs; for information on whether an EIN is required, see: