When does a website become a business

A single website, or a group of websites, can be a "business" long before there is any income.

But I surely think that once a site gets to the point where it produces a modest income it might be time to consider making it an "official" business, LLC or inc., etc.

To my annoyance the Tax leaches declare a business anything that makes money. I tried to get my site classed as a 'hobby' but they wouldn't let it happen.

IMHO, if you have enough income that you need to start declaring it on your taxes, it's a business.

------

Expenses that were incurred to earn the income can usually be deducted from that income for tax purposes, but they have to be adequately documented.

If you have a website that earns income, you might not be allowed to declare a net loss, but you should be able to deduct costs like your hosting, domain names, advertising expenses, your internet connection, computer equipment, office equipment and supplies, reference books and lots more.

Keep a good paper trail.

Yes! Thats what I do, my web hosting, internet access, hardware and software are all deducted from my tax. If I was planning it better I could claim part electricity, and part rates.

Amount of income has nothing to do with deciding to incorporate. The decision is based on legal, organizational and tax reasons.

Hi LukeM and welcome to WebmasterWorld [webmasterworld.com]!

It sort of depends on why you want to classify it as a business (as opposed to a hobby). For tax purposes, there can certainly benefits to being identified by a business. As Buckworks said, if your expenses are more than your income, you can take a net loss to charge against future income. But if you are classified as a hobby, you can only deduct expenses up to your inome amount.

Another thing to consider is location- what are the local regulations where you live/operate? These days, it seems that local governments want to squeeze every last cent out of businesses and individuals and some are rewriting their rules for what they consider businesses and how much to tax them. So it might be better to NOT be classified as a business to stay under the radar.

Also, while $200/month in the United States won't even pay the rent, that same income in some countries could support an entire family.

In Canada, a business is "any activity that you do for profit". This applies even if you don't have any profit left after expenses at the end of the day. A net loss is still profit... the negative kind.

The moment you put an affiliate link on your personal blog: KAPOW! it's suddenly a business.

We even have a special tax form for it. T2125 [cra-arc.gc.ca].

Doesn't matter if, in your heart, you think of it as a hobby. The government says, money moves toward you, therefore it's a business. Then the word "hobby" is merely an emotional distinction, not a taxation category.

Running a business with a net loss is one of the many ways a salary-earner can lighten their income tax burden. Treating hobby projects that generate income as legit businesses is usually beneficial, because true "hobbies" always cost more than they earn.

OP - Whenever this question comes up, I suggest that you look at the possibility of incorporating. That can be a real benefit in today's litigous society in that you can isolate your personal wealth from lawsuits (IF you do everything properly).

Also, things are a lot easier today in that there are Limited Liability Corps which, as far as I know, are easier to set up than the old S-Corps.