Tax Tips: Your Blog as a Business!
As this blog continues to grow in terms of traffic and income, it would be prudent to consider it as a separate personal business for taxation purposes. What advantages does this give a blogger? For one thing, it gives me a bunch of tax deductions that I can claim come the end of April (or later since it’s a business)! Some of these include:
- Computer (% for business use, claim depreciation)
- Internet connection (% for business use)
- Office space (% of mortgage interest/tax/insurance and utilities)
- Office supplies related to the business
- Domain costs
- Web hosting costs
- Advertising costs
- Even travel (if it’s for the business)
I can see this being a modest tax advantage in the first or second year of business where the blog expenses claimed will most likely exceed the income produced. As it is a personal business, the excess tax deductions can go against personal income.
Experienced bloggers out there, any tax tips for a semi-new blogger like me?
11 Comments, Comment or Ping
1. Warren
FT, that’s a great idea, but be warned, any books I read related to tax deductions for personal business make it clear that CRA looks hard at some businesses that don’t make a profit after a year or two, since “expectation of profit” is a key line in our tax laws. On the other hand, if you do turn a profit, congrats. :)
May 1st, 2007 @ 9:50 am
2. Investoid
I agree with Warren – don’t expect to have a loss. Rather, expect to reduce your taxable income by claiming legitimate expenses to offset the revenue you are receiving from the blog.
May 1st, 2007 @ 10:39 am
3. FrugalTrader
Good call there guys. My point being is that for bloggers to not forget that their blog is a business, and that there are certain expenses that they can claim.
May 1st, 2007 @ 10:50 am
4. ThickenMyWallet
I am assuming that you are claiming these deductions as a sole proprietor and not incorporating.
From practical experience,CRA tends to look at side businesses operating as sole proprietorships a lot more carefully than corporations who make little to no money. The very successful bloggers most likely incorporate for tax reasons (i.e. to take advantage of the lower corporate tax rate) and given that blogs are sold now a days, incorporating gives you access to the capital gains exemptions on CCPC’s on the sale of intellectual property (assuming its a share sale).
CRA loves to nit-pick in these types of situations especially if your employment income is quite high and you start claiming deductions on a side business to lower your taxable income. There’s a infamous tax case of CRA chasing a successful couple for $1200 in deductions!
You may want to sit down and figure out how much money you may make with the blog and AGLOCO going forward. If it becomes significant, the deductions can be helpful (and so may incorporating). If its not adding that much to your taxable income, is it worth the hassle of all that book-keeping and potential audit risk?
May 1st, 2007 @ 9:12 pm
5. Investoid
One note the CCPC capital gains exemption – it’s only valid if you’re the only person who’s owned those shares for the past two years… including if they didn’t exist before. So if you start a company, issue yourself shares and sell them within 2 years you will not get the capital gains exemption.
This works on a rolling basis, so if you issue shares now, then more in a year, then sell all of them a year later, your first set will be exempt while the second issue is not. This has already tripped me up once.
May 2nd, 2007 @ 1:53 am
6. Ed Rempel
FT,
Incorporating has some tax advantages, but also extra costs to setup and do corporate tax returns. If your business is small, this is probably not worth the cost.
Most businesses take a while to become profitable. CRA normally has no problem with a couple of years of reasonable and declining losses, as long as it looks like there is a reasonable expectation that you will show a profit by, say year 3.
If you go many years without showing a profit, then you risk having it all disallowed retroactively.
Also, if you are leveraging or doing the Smith Manoeuvre, then you have additional options with a non-incorporated business and a disadvantage with incorporating.
If you incorporate, then your leverage interest deductions are accumulated in a CNIL balance that reduces your capital gains exemption.
If you keep it as a sole proprietorship, then you can do the Cash Dam and convert your mortgage interest to a business deduction over time.
Ed
May 5th, 2007 @ 12:58 am
7. Pat
I would more likely include it as part of an existing business rather than separate it out. It is just marketing costs for your main business, and if it makes some income, that would be minimal compared with the expenses if you take paying staff in to consideration.
Oct 27th, 2008 @ 1:01 pm
8. Tax Preparation
such a nice information about income tax so i read and understand about tax preparation.
Feb 9th, 2009 @ 7:07 am
9. Jeff Paul Internet Business
I am running a small internet marketing business as my side business. This has helped me cut time when I’m free from my busy schedule. I really get satisfaction when I am my own boss.
Mar 6th, 2009 @ 1:27 am
11. mjw2005
I believe if you use computer equipment over 50% of the time for business that you can claim 100% of the CCA for the year….
I also agree about turning a profit…I always here guys talk about how they have small businesses that never turn a profit and I wonder how come the CRA does not come calling….I mean why wouldn’t we all just start a small business based on are hobby get a few dollars in revenue and rack up a few thousand in expenses and call it a day…we can’t at least not year after year…so yes you should either have a very good reason for not turning a profit or the CRA is going to eventually say you are not running a business….
Apr 15th, 2009 @ 11:28 pm
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