This is the first in a series of articles about blogging and taxes So you have a blog, and you're making some money. What do you do now?
BUSINESS FORMATION
If you want to keep it simple, give your advertisers your name and social security number for reporting purposes and they will send you a 1099 (if your earnings are over $600 per year). If your earnings don't meet the threshold for receiving a 1099, you are still required to report the income you received from the advertisers. You can do this on Schedule C as a sole proprietor, or if you don't have any expenses associated with the income, on line 21 of your 1040.
In certain circumstances, you might want to form an LLC. This is a simple form of organized business. If you are the sole owner, there is no additional tax filing paperwork required, it is reported on your 1040, on Schedule C. If there is more than one owner, there is a filing requirement of Form 1065, which is due April 15. The 1065 will produce a K-1 that is reported on your personal income tax return. There are other structures of business, corporations or S-corps, but for most internet entrepreneurs, an LLC offers the protection you need with a simple structure. The LLC generally pays no tax of it’s own, all the income and expenses flow through to the owners and the income is subject to Self Employment tax.
YOU THINK YOU WANT AN LLC, WHAT DO YOU DO?
One of the first steps in the LLC process is picking a name. You want to do this wisely. It is not impossible to change your name after the fact, but it isn’t easy. Most states require that you include "LLC" in your name if you are a LLC. The Secretary of State’s website can be a resource for choosing your name. Normally they have a searchable database of names recorded, and you can’t duplicate. It doesn’t have to be the name of your website either. It can be Yourlastname Media, LLC or yourdogsname, LLC if you want. As long as the name is not misleading or offensive, the state will probably ok it. But don’t get your heart set on something before you check to make sure someone else hasn’t had that brilliant idea before you.
Each state has it’s own filing requirements for setting up an LLC. You can normally find these requirements on the Secretary of State’s website for each state. There may also be initial filings required once your business is set up. Your state’s website for the Department of Revenue can also be helpful. Most of them have a “new business” section with helpful information and links. Once you set up your LLC, the state generally sends you some confirmation paperwork. This will have the date the state recognizes you as an entity. This will be important for your tax filings. DON'T LOOSE THIS PAPER.
An LLC will offer you protection under the law if there is ever a lawsuit filed against your company. If you have been keeping your business and personal items separate, the courts will generally only look to the assets of the LLC to fund a settlement rather than trying to take your house, your car, your kid’s college fund, all your investments, and your cat to pay off the person suing you if they happen to win.
The way to insure that the courts don't look to you personally to satisfy a judgment is to keep ALL YOUR BUSINESS ACTIVITY SEPARATE FROM YOUR PERSONAL ACCOUNTS. Don't pay your kids preschool tuition directly out of your LLC account. Don't pay for your groceries with the paypal debit card directly linked to your LLC account. If you want to use money from your LLC money, transfer it to your personal account, then pay for whatever you need to pay for. If you keep it separate in the day to day business, the courts will be more likely to keep it separate in the event of a lawsuit. It shows the court that you are treating the business as a business, not as an extension of your personal checking account. It sounds like a record keeping nightmare, but think about how relieved you will be when a judge throws out any personal claims against you and your assets.
WHAT DO I HAVE TO TELL THE IRS?
In conjunction with filing for your LLC status, you should also apply for a Federal Identification Number, it's a social security number for your business. You can do this electronically on the IRS website. They have recently changed the process so you answer a series of questions instead of filling out a blank form. Once you have completed the questions, you are provided with your number instantly. That is the number you want to give to your advertisers to report your earnings under. This number will be used to identify your business with the state and federal government. Like your LLC paperwork, it’s important to keep up with this number.
A lawyer or accountant can help you with all of these steps. If you decide that you want to do more than create an LLC, you definitely need the advice of a lawyer or accountant as there are more stringent reporting requirements and the initial filings are more complicated.
Wednesday, I'll talk about business income and the home office deduction. Thursday, I'll talk about deductible business expenses and where to report all this. And Friday, I’ll answer any questions you might have, just leave them in the comments or e-mail me.
-------------------------------------------------------------
I do work like this and more for a internet based businesses, and I can help you!
DISCLAIMER: Any tax advice was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions
Excellent post, Kelly. Very, very good information. I look forward to the next installments!
Posted by: Christy M. | January 13, 2009 at 11:02 AM