When I started my blog in early 2015, it was originally just a hobby. Two sisters sharing our stories on the Internet to inspire others. Since that time, I became the sole owner of Burke Does and began to monetize my blog as a way to make extra money to pay off debt. With those changes to my blog, I had to consider if my blog was a hobby or business so I would know how to appropriately file my taxes with the IRS. This year is the first year I will have to file taxes for my blog income, which is now a business.
The easiest way to know if a blog is a hobby or a business is if you are making a profit or intend to make a profit. Hobbies are something that you put your own money into without ever being recouped for the investment, such as skiing, bicycling, or reading books. For example, working out through Crossfit is a hobby of mine and I have no intention to make a profit from it. Businesses, however, have the ability to make a profit (even though most new businesses do not begin making a profit for the first few years.) Some questions that the IRS suggests asking yourself to determine if your blog is a hobby or business is “Do you put in the necessary time and effort to make a profit?” “Do you have the ability to make a profit in the future?” “Have you changed methods of operation to improve profitability?”
Once you make over $600 from blogging, you are required to report it on your income taxes as self-employment income, regardless if it is considered a hobby or a blog.
If your blog is a hobby, you can only take deductions for ordinary and necessary hobby expenses, up to the amount of hobby income. To do so, you would need to itemize your deductions on your tax return instead of taking the standard deduction. For many people, though, it is more advantageous to take the standard deduction and not itemize expenses.
If your blog is considered a business, you can take deductions for the business, even if your blog did not turn a profit. Those deductions are determined through calculations on the IRS’ Schedule C form and the net profit from your blog would be reported on your personal income tax form (if it is a sole proprietorship.) However, if your blog did not turn a profit in at least 3 of the last 5 years and you continue to report losses, it makes it more likely you will be audited by the IRS.
The key to proving your blog is a business and not a hobby is to keep detailed records and receipts. Also, writing a business plan for your blog shows an intent for profit (as well as helps to make you successful at blogging!) Keeping your blog expenses separate from your personal expenses is also important to prove that your blog is a business.