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Adsense as Passive Income. Current Thoughts?

Adsense as Passive Income

     
9:34 am on Oct 16, 2009 (gmt 0)

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For USA advertisers: Are any of you declaring adsense income as passive income on your tax returns?

I have two accountants I've talked to and I get different decisions for each. I'm trying to get confidence to declare adsense as passive income.

Note that some websites don't lend themselve to passive income since they require daily care and feeding for things like product reviews, blogs, price comparisons, etc.

If you don't think a fairly static website qualifies then please say why.

Thanks.

11:17 pm on Oct 21, 2009 (gmt 0)

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jhood, Why doesn't it qualify? Can you give any more details?

Also, I'm not advertising - that is Google's biz. I'm providing google with space. Google is paying me for the use of that space.

9:55 am on Oct 22, 2009 (gmt 0)

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The IRS page on the topic specifically states that stock dividends are not passive income.
The IRS page doesn't specifically address AdSense-type income, but I'd bet dollars to doughnuts you'd get slapped down if you tried to claim it as passive income. It really doesn't fit either of the definitions the IRS uses for passive income.

When in my tax declaration are serveral thousand EUR expenses for all the travel to visit fairs or interesting projects, it's clear that's not passive.

9:04 pm on Oct 22, 2009 (gmt 0)

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FWIW - In Australia it's considered very dangerous to make generalities about taxation law and its application.

While several business models might, at face value, appear to be very much the same, each and every one needs to be looked at singly depending upon one's own "individual circumstances".

Many a person has been financially burnt by overlooking that fact.

What is applicable to me, might not necessarily be applicable to you. As always, seek professional advice and even that has be proven wrong at times.

10:07 pm on Oct 22, 2009 (gmt 0)

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Why not read what the IRS has to say about passive income?

[irs.gov...]

Key quote:

Passive Income

Passive income can only be generated by a passive activity. Just because the taxpayer did not work for the income does not mean it is passive. There are only two sources for passive income:

- a rental activity; or,
- a business in which the taxpayer does not materially participate.

The IRS article goes on to specifically exclude "Form 1099-Misc. commissions" and "Income from any activity in which the taxpayer materially participates."

11:08 pm on Oct 22, 2009 (gmt 0)

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john

interesting info. I just looked at an older 1099 from google (not sure if it is same as current 1099s) and it says #7 NonEmployee Compensation. it is also a 1099 MISC not a 1099 Commissions.

I don't spend more than 100 hours a year on Adsense.

12:08 am on Oct 23, 2009 (gmt 0)

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Passive Income

In the days I practiced Accountacy in the 1960's, the definition used here was:

a) Income from personal exertion OR

b) Investment Income.

It was either one or the other and mainly related to how much after tax income a private limited company could retain before compulsory dividends [taxable again] had to be distributed.

The thrust of the idea was to discourage people forming a LLC solely as a tax dodge. If you actually did something in the real world then you could keep 50% of after tax profits in the company. If it was deemed investment income then only 10% could be retained.

That was in the days PLLC tax was 45% and top personal tax rate was 60%.

I vividly remember it so well and Australians of today say they are over taxed. We've never had it so good.

1:36 am on Oct 23, 2009 (gmt 0)

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Ok... if you don't hear from me for a while you'll know I couldn't get internet privs in the slammer.

ps. we are all going to need a little more income to pay for our discount healthcare.

2:59 pm on Oct 23, 2009 (gmt 0)

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I think a definition of "materially participate" is what's needed here.
11:45 pm on Oct 23, 2009 (gmt 0)

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Material Participation:

Rules are here: (hope it is ok to post irs site)
[irs.gov...]

The simplest case is < 500 hours a year.

4:03 pm on Oct 24, 2009 (gmt 0)

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you can do that, if you got webpage with a huge amount of traffic, let say like Dp forum....
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