Tax Question

[manchego]

I know this is probably not the bast place to ask for "tax advise" but in 2004:

1) Besides Adsense revenue, the only other income I recieved was $100 in interest from a bank account
2) I did not have a "business" nor was I "self employed," I was a full time student

I prepared my tax online at HRBlock.com, and then gave it to my accountant to review. H&R Block did not think I needed to pay Social Security Tax, because I was "providing a service" and as such I would be considered self employed and subject to this tax.

I was under the impression that the revenue from AdSense would be considered more along the lines of a "royalty" which would not require me to pay SS taxes.

[martingale]

It doesn't matter whether you were a full time student or not. You were in fact also running a business. The correct way to treat AdSense revenue is to treat it as business income. The good news is that any expense you can identify as a business expense you can write off.

Did you pay for any AdWords advertising? Write it off. Write off your hosting costs. Write off a portion of your rent as a cost of doing business (your office). Write off the cost of the computer you used to edit your site. Write off the cost of your internet connection. Write off the cost of any magazines or services you subscribed to related to your business. Etc.

Disclaimer: I'm Canadian. You might not be able to write off all the same things I can (I am not sure how rent is handled by US taxes). I am sure the overall idea is the same in any country--it's a business.

[annej]

I have a question on US tax. We are retired so our income is low enough that we would have paid less tax if we had just put adsense as part of our income rather than as a separate business even with deducting expenses.

What we aren't sure about is if that is allowed. Could we simply claim our adsense earnings with our general income or do we have to do it as a business?

[manchego]

I do not consider it to be my business -- I spent NO time and NO effort in the site, it is there and it generates revenue, nothing else, I dont update the site, etc, etc.

I had $0 total in expenses running this site.

If I were to write off the costs of my rent, internet connection, computer, etc, they would only be maybe $5 total because the only effort I have put into the site was about 1 hour.

[spaceylacie]

Adsense is not royalty. You are getting paid for providing an (online) service.

I went to HRblock today to prepare my taxes. From my adsense income, I ended up owing $762.00. This included claiming as many deductions as possible, my new digital camera, office supplies, part of my rent(for owning a home business), part of utilities, computer repairs and upgrades, magazines and tv networks I subscribe to that are related to my niche... Without deductions, I would have owed a couple thousand dollars.

Why not claim it as a business and deduct your home office expenses? Part of your rent/mortgage and utilities bills, for example. Save yourself a few bucks.

[hunderdown]

AdSense income, unless you've incorporated, is self-employment income, and therefore must be reported on Schedule C (in the U.S.).

[wyweb]

i write off my house - some of it anyway. I also write off a lot of vehicle expenses because I am in a never ending search for the right client and I have to drive a lot to do that.

I save tabs from meals when I've paid for them, cars if I've had to rent them, lodgings. All that can be written off by a creative mind.

I write off other things as well. If you're self-employed in the US there is literally a ton of things you can deduct and get credit on. I work from my house so a percentage of my rent can be written off, as well as operating expenses for my house/office and other things.

[manchego]

Ok.. this makes no sense now, I got my tax papers back, instructions for 1099 state:

"Do not report on this line any nonemployee compensation shown in form 1099-MISC. Instead see the chart on page 15 to find out where to report that income"

Page 15 states:

"Schedule C, C-EZ or F. But if you were not self employed, see the instructions on Form 1099-MISC"

I need to find instructions for Form 1099-MISC....

[spaceylacie]

I'm not sure on this, but I think you have to claim it as a business, like it or not. Start thinking about expenses you can write off or give up adsense...

[crescenta]

That's what I'm doing right now--looking for expenses to write off.

I'm telling you, I never thought I'd be happy to see that I'd spent (too) much money on web hosting and domain registration (and software, and books). It all adds up, and I'm definitely going to declare it.

[annej]

I'm not sure on this, but I think you have to claim it as a business, like it or not.

That's the impression I got from the tax guy but I was hoping he was wrong.

Claiming expenses does help though.

[gmac17]

it doesn't matter how much time you spent on it - it's a business. Do you have any computer related expenses? Internet access? New hard drive? Expense them. repeat.

[martingale]

manchego, welcome to the ugly world of taxes. In the ugly world of taxes it doesn't matter a whit what YOU think, all that matters is what the taxman thinks, and I can promise you the taxman thinks it's a business.

Get a tax professional to help you do your return. They'll likely save you money by finding things to claim that you missed, and so cost you nothing in the end, yet save you hours of frustration.

[MrAnchovy]

I do not consider it to be my business
--
it is there and it generates revenue, nothing else
--
the only effort I have put into the site was about 1 hour
--
"if you were not self employed, see the instructions on Form 1099-MISC"

I need to find instructions for Form 1099-MISC

It appears you are still trying to find a way to avoid paying the proper taxes... and while I wish you the best of luck in doing so, please be aware that Google has a vast number of publishers, and many (if not the majority) are self-employed, sole-proprietors (like yourself) for the IRS to reference.
When 95% of those self-employed, sole-proprietors file one way & you file another (in an attempt to knowingly avoid the taxes), don't be surprised if the IRS requests that moeny in the future, with penalties/interest/possible charges.
Granted, there are surely some legit reasons for a self-employed, sole-proprietor to avoid having to pay the SE-tax (SS), but working for only 1-hour & being a student are not one of them.

Pretty much everyone on this forum is in the same boat as you... and none of us particulary like it either. Please take the adivce in the thread, it may save you some trouble in the fututre.

Also... for what it's worth, if AdSense is going to continue to be your primary source of income... you are likely also required to file quarterly estimated payments every 3 months to the IRS (and at the state-level too depending on where you live). Penalties for not doing so are rather modest if I recall (just interest), but if you've knowingly & flasly tried to avoid paying taxes, it's just 1-more thing they could get you for.

[manchego]

Thanks for the advice, honestly I didn't have much time to look into it further -- I had have my taxes prepared by a professional, but was trying to see if there was some way around this.

If I have to make quarterly payments, I would be first notified, correct?

[MrAnchovy]

If I have to make quarterly payments, I would be first notified, correct?

No.

As someone who is self-employed, and whose income is not reported to the IRS until the end of the year, they have no clue as to what type of income you are earning until Google sends in the 1099s & until you file your return.
They could obviously guess based on past returns, but self-employment/contractor income usually experiences some rather big swings from year-to-year.
The end-result is that it is up to you to know if you are required to make estimated payments.

If you are required to make estimated payments, and don't... the first you will probably hear from the IRS is after April 15, 2006... and of course, it will more than likely contain a notice of non-payment along with a bill for penalties.

Assuming your situation does not change, and your only income is AdSense + bank interest you are required to pay estimated tax payment if your expected 2005 tax is greater than $1000.

Head to the IRS site & download 1040-ES & Publication 505.
1040-ES contains a brief summary of the rules, a worksheet to figure your esitmated tax, along with payment vouchers.
Publication 505 (pages 18-36) provides more in-depth information regarding estimated payments including all the rules, penalties, etc.

Considering that you only have 1 source of income (aside from bank interest), and that there are most likley zero tax withholdings from that income, it's an easy one for the IRS to flag for not making estimated payments.

I would definitely get the information regarding estimated tax payments & schedule an appointment with your accountant as soon as you can.

And don't forget the estimated payments for the state-level if required.

[Arnie]

I also spoke with my tax professional at H & R Block about quarterly payments, and they basically said that if I had the discipline to save a percentage of my earnings for future taxes (43% total), I didn't need to make quarterly payments. I do have to be prepared for a scary number next March/April, and pay the total to the IRS then. Quarterly payments were conveyed to me as an option. Is this true? Does the State your living in have any bearing?

[conroy]

quarterly payments are not an option in most cases. Note in msg 16 the information on if you will be required to pay $1000 or more. You need to talk to someone who knows what they are talking about, which may not be h&r block. Remember that when you get hit with penalties and interest, YOU pay it, not h&r block.

[hunderdown]

If you are also working in a 9-5 job, you have the option of having extra tax withheld from each paycheck, which is easier to manage than quarterly payments or an end of the year chunk....

[Arnie]

I do have a 9-5er. My AdSense is >$2000/month now. I'm also at Single - 0 on State and Federal. I was told that I could ask my employer to add on $+25-50/week (or more) to the witholding to offset the additional income (started with AdSense in January, so only applies to 2005). Obviously I need to speak to a tax professional, but is there any opinion on whether I should have more taken out from the employer, or should I not, and make quarterly payments (if in fact it is the law in my state)?

Thanks

[MrAnchovy]

Obviously I need to speak to a tax professional, but is there any opinion on whether I should have more taken out from the employer, or should I not, and make quarterly payments

The whole goal is to pay within $1000 of your esitmated taxes.... how you pay it (via quarterly payments, or from paycheck withholdings) doesn't really matter... just as long as you do.

(if in fact it is the law in my state)?

Just for clarification... it applies to pretty much everyone @ the federal level... so you are going to have to make those payments somehow.
In addition to federal estimated taxes, most (if not all) states that require income taxes also require quarterly payments/extra payroll withholdings for that untaxed income.

A simple way would be to get the 1040-ES (and your state form) and figure out how much your estimated tax payments would be. Then simply divide that number by the number of pay periods from your 9-5 job & you have that amount to be taken out of your check to cover your SE/SS (and state) taxes.

Something thing to consider with quarterly payments, as opposed to payroll withholdings, is that the money is yours to do with as you please until the estimated tax payments are due. For those few months that you have it, you could milk it for interest/investment/etc purposes. Obviously the quarterly estimated tax from $6k isn't going net you huge returns over shuch a short time, but every little bit helps... and the more you make, the stronger you should consider such a thing imho.

And another option, is to re-submit your W-9 to Google... & iirc, simply leave the 'Exempt from backup withholding' box unchecked & Google will withhold 27% of your payment for federal taxes. With even the most basic of deductions, you will probably overpay on you AdSense income, which would either mean a refund or a smaller payment due depending on other sources of income/taxes.

[Roadkill]

Here is the scoop if you havent already figured it out. Income on a 1099 has to be put on a schedule C or similar, unfortunatly you are then subject to SE tax which is at 30% less exspenses (ouch) only way around that is through a corporataion then the tax is basicaly 15%.

Just had a long discussion with my accountant trying to find a way around that SE tax. No avail.

So I am going to change my W-9 so the income is run through the corp. So then will google make check out to the corp or can I still have it made out to me and funnel the numbers through the corp? Anyone know before I make the change?

[Roadkill]

OOps forgot to ask one more thing. When I make a change from personal to corp. Will there be a hold or any hangups that someone may have experienced with this type of situation?

[martingale]

When you change to the corp. the cheque will be made out to the corporation. You can also do direct deposit, in which case the deposit account has to be opened in the name of the corporation.

Note that the corporation is a separate legal entity from you. Even though you own 100% of it, it's considered to be a different "person". As a result, AdSense may not allow you to transfer the account. You may have to open up a new AdSense account in the corporate name.

[sailorjwd]

I created a corp a few months ago and had to open a new Adsense account. They made it pretty easy. I'm able to transfer my code snippets for ads while both accounts are running. So the income gradually switches over to the new account. I notice that even after a week or two I'm still getting some impressions/clicks on the old pages due to caching of pages.

The only painful part was recreating all the channels.