Greetings, friends. For the past 4 years I’ve shared the Go Curry Cracker tax returns to showcase how the Four Principles of Tax Free Living are applied in the real world.
I violate Principle #1 myself, which means I get to file additional tax forms, namely the Schedule C, Profit or Loss From Business (Sole Proprietorship). This is of course good fun.
It would be a shame to keep all of these good times to myself, so this year let’s explore the GCC business taxes. In doing so, I will reveal all of the juicy details on how I make (and spend) money blogging.
In business, income minus expenses equals profit, obviously. For sole-proprietors (and LLCs taxed as such) each of these are reported on the Schedule C, with both self-employment and income taxes being due on the profit (if applicable.)
As long as you are profit seeking and continually and regularly involved in an activity, it is a business, and each business gets a Schedule C.
Part I – Income
2016 was a decent year for GCC, with total revenue of $34,916. This gets reported on Line 1 of the Schedule C. Since I’m not selling any products, this is the only information entered in Part I.
The IRS doesn’t ask for detailed information on revenue sources, but I’ll tell you anyway. (The IRS already knows, since every company who paid us more than $600 issues a 1099.)
Revenue came from 8 different sources, primarily from products and services that we regularly use and love. The majority of direct income is from Personal Capital, credit card referrals, and Google Adsense.
Personal Capital – $19,000 (great cash flow and investment tracking tool. And it is free.)
Credit cards – $4,782.50 (FREE travel! Last year we saved $10,000 on flights & hotels)
Google Adsense – $4,043.22 (context based ads)
Amazon.com – $1,306.39 (books and stuff)
FlexOffers & CJ – $499 (hotels, Turbotax, etc…)
Traveling Mailbox – $345 (digital mailbox, read my review)
Betterment – $300 (this was surprising)
Capital One 360 – $260 (our default cash account)
Other – $4,380
Total – $34,916
Most interesting to me (and maybe other bloggers) is the Other category. This is income from other people’s sites and blogs. Both Personal Capital and FlexOffers share revenue when you refer new affiliates.
Part II – Expenses
Expenses come in many different forms, and the IRS asks a business owner to highlight 23 different expense categories (plus one more reserved for future use.) GCC had a total of $6,530 in expenses in 2016, about 20% of total revenue.
Advertising – Line 8
I spent $325 experimenting with advertising on Facebook. This definitely drives a noticeable uptick in views coming from Facebook, but whether it is worth it or not is still TBD.
Commissions and Fees – Line 10
Winnie has a much larger audience on her Facebook page (Chinese only) but a smaller following on her blog (also Chinese only.) We put a single ad on her blog via my Adsense account this year, which then paid me after which I paid her. Total commissions: $212. (This is claimed on a separate Schedule C.)
Contract Labor – Line 11
I hired two contractors this year for a total outlay of $306. The first I found on Fiverr and paid $6 for some logo design work, which I subsequently tossed in the (digital) trash.
The second contractor is Jr to whom I paid $300 for his modeling work on the blog / Facebook / Instagram. He contributed 100% of this to his Roth IRA. Photos with him get more Instagram likes than photos without, so there is a traffic/revenue boost from his services.
Depreciation etc… – Line 13
Depreciation is one of the most powerful tools for income / expense shifting for tax minimization. This year we claimed depreciation of $1,296.
I could have completely expensed all of this cost this year, which would have saved 15.3% in self-employment taxes and 10% income tax. Instead, I used a Section 179 deduction of $450 on the phone (the shortest expected useful life item) and normal depreciation of $470 on the rest. We also had $366 in depreciation on existing assets (my laptop, etc…)
Why shift the deduction into the future? I expect income (and our tax rate) to be higher in 2017. A deduction next year is worth more than a deduction this year.
Other Interest – Line 16b
I paid $181 in credit card fees for processing 2016 estimated tax payments and our 2015 self-employment tax bill.
“You paid $181 for the privilege of paying taxes?” you may ask. Yes I did. I value the $10,000 in free hotels and flights more than I value $181. ymmv
Legal and Professional Fees – Line 17
My brokerage (Fidelity) provides a free copy of Turbotax but the additional forms for business income came with a $66 fee. This is 100% deductible.
I also paid $8 for membership in a Financial Fitness organization. Coincidentally, this also allowed me to open a bank account at a credit union that allowed an initial deposit from a credit card (more points) and paid a $150 signup bonus (more cash.)
Total fees: $74
Office Expenses – Line 18
I paid $1,973 in office expenses. Most of this was for mailing list management. If you aren’t already on our mailing list, you can sign up right here.
For most of the year I was using Mailchimp (paid $713) but I switched to ConvertKit in Q4. I liked it so much that I paid a whole year in advance ($1,208.)
Supplies – Line 22
This includes a couple notebooks, some SD cards, a lens cap, misc cables, and $2 for a tape measure to measure my home office size. Total: $253
Taxes and Licenses – Line 23
An annual license for Photoshop costs $131 nowadays.
Travel, meals, and entertainment – Line 24
I like travel, food, and entertainment, so this is one of my favorite line items.
Our trip to FinCon in San Diego was a business expense, as was our stay in LA to meet with ABC TV. This set us back $1,039 (Line 24a.)
We happened to eat during our stays in these places. Total: $163 (Line 24b.)
Utilities – Line 25
I spent $386 on the business use portion of various SIM cards as we traveled and for home Internet in Taiwan.
Other expenses – Line 27
This is the catch all category for all of the stuff I forgot to include on the previous lines. $142 is for the business use portion of our Traveling Mailbox mailing service (review.) The remaining $49 is for various purchased photos, printing services, document mailing, etc…
While we were hanging out in Taipei I converted our spare room into a home office. This allows me to write off $327 of our rent and utilities (Line 30.)
As a business owner, I also get to write off the cost of health insurance. We paid $600 last year into the Taiwan health system for Winnie & Jr. This appears on Line 29 of the 1040.
Other Tax Minimization Options
I touched briefly on how depreciation allows us to time shift income for tax minimization. In 2016 we could have claimed anywhere from $0 to $5,033 in expenses for new assets.
In addition to depreciation, we have the option to make tax deductible contributions to a solo 401k and an IRA. In 2016 I made an $18,000 contribution to my Roth solo 401k and we made his/hers contributions of $5,500 each to individual Roth IRAs. Roth contributions aren’t deductible, of course.
In addition, I could have made deductible employer contributions to the solo 401k of up to 20% of blog profit ($5,677.)
All together, we could reduce taxable income by up to an additional $39,710. That is a lot of flexibility in the tax minimization game.
The Schedule C form for a sole-proprietor is fairly straight forward, and is primarily a summary of Income, Expenses, and Profit. By going line by line through the GCC Schedule C, hopefully it sheds light on how a blog can earn an income, normal blogging expenses, and how a business is taxed.
While more paperwork is a bummer, having a business provides a great deal of flexibility and tools for tax minimization. Expenses that may be normal personal expenses become a valid business deduction, such as cell phone purchase costs (for Instagram and blog management), credit card fees for tax payments, and a home office. It also provides additional tax shelter / deferral options with a solo 401k.
Aren’t Taxes Fun?
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