Forum Moderators: phranque
Seriously, thinking of somebody making 100 dollars a day from ads, one could probably live from the money - if you wouldn't have to tax it and thus loose some 50 percent (depending on where you are from).
Since many of you guys make this amount from ads only, I wonder what the most efficient way of saving money from the tax is. Interestingly, this issue does not seem to be widely discussed on this forum, despite of buggung quite a number of people here.
Do you all officially live on the channel islands or in the Caribbean? Spread accounts over family and friends? Or pay the full tax in your country of origin?
If you want to pay less in taxes, there are only 2 (legal) ways:
1) Make less money
2) Get more deductions
(Comments are based on U.S. tax law.) Basically, make sure that you are claiming all the business expenses that the tax law allows you to. For some, it may make sense to form a corporation or LLC. Your business should be paying for your health insurance and contributing to your retirement plan (both get more complicated if you have employees).
For more details, consult a tax adviser who can give you in-depth advice based on your specific situation.
If you are taxed on overseas income, you can get a tax credit to reflect that the money was already taxed by another jurisdiction. If you live overseas (subject to certain requirements, including being physically outside the U.S. and its territories for at least 330 days of the year), you can exclude some of your overseas income from U.S. taxes. (I believe it was about $70K plus housing exenses 5 years ago, the last time I qualified for the exclusion.)
How the income is taxed depends on how it is earned, which often depends on how your structure the business. Examples:
- sole proprietor: profits are taxed as ordinary income plus self-employment tax
- C Corp: corporate tax on profits; then
A) employees pay ordinary tax (plus their share of payroll taxes) on wages paid to them and corporation pays payroll taxes (corp gets to deduct wages & taxes, lowering its taxable income), or
B) dividends to owner taxed like ordinary dividends (but corp doesn't get to deduct)
Any EU citizens around that know how to handle the matter on this side of the Atlantic Ocean?
The thing to do, and this applies broadly speaking regardless of where you are in the world, is to offset the maximum amount of "expenses" against turnover as possible, so you only pay tax on the profits. Slightly different rules apply in different countries, but the principle is the same.
Here in the UK, there are a great many perfectly legitimate business expenses you can claim. For instance, hosting, domain names, hardware, software, phonecalls. Do you travel as part of your internet business? If so, you can claim for that too. Advertising, promotion. All this stuff is for your BUSINESS.
If you're running a business from home, you can also claim a portion of your gas/electric/water, BUT, only claim a sensible part - around 15-20% - as you do live there after all, and would generate these expenses anyway. Claim too much against your home, you get hit for tax when you sell it.
Bottom line, if your business turns over £10,000 for example, and you have accrued expenses of £6,000 in the course of running that business, you only pay tax on the £4,000 profit.
Stop thinking of revenue generated by your site(s) as income, and start thinking in terms of turnover, expenses and profits :)
I'll remember your advice once I hit the 2-Dollars-a-day mark! ;)
