Affiliate Marketers: Mind Your Taxes
As you're probably aware, tax season is right around the corner and now is the time to get organized for your tax man if you aren't already. A while back, I posted a thread on Digital Point Forums asking those more experienced than I how to approach taxes as an affiliate marketer. You can read that post here.
For affiliate marketers, an integral part of the business is advertising in general and if you're wondering the same thing I was at the time that inspired the thread, it's probably "can I write advertising off as an expense?" The short answer is yes, but the good news doesn't end there. You can also deduct any expenses that went into your affiliate marketing business, such as domain fees, hosting fees, paypal fees, software purchase fees, book/ebook purchase fees, phone fees, internet service fees, computers, office furniture, etc. Essentially, everything you spend money on that has to do with your business becomes a write-off. Or to put it simply, you are only taxed on your actual profit. The less profit you make it seem you have, the less you'll be taxed on (tax 101, I know).
One thing I'm definitely doing this tax season is hiring my own tax guy. It's not that there are piles and piles of paperwork to go through. Instead, I want to ensure I'm writing off everything possible to keep as much of my earnings as possible and to decrease the overall taxable amount. I recommend you do this as well.
Now one thing I've heard people recommend is to incorporate. While this might be a great idea once you're in the multi-thousand-per-day boat, you aren't going to save much money by incorporating before-hand. In fact, you might lose more money by qualifying for double-taxation (ouch).
Overall, I recommend that you just keep monthly records of your profits (and losses) to show your tax guy. My past accountants have told me they just want totals, but in this case, I think it's best if you go over everything.
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January 16th, 2008 at 11:32 am
Great advice. But I haven’t reached anywhere close to your level of a $1600 day.
Here’s the way I look at it. When I started, I thought this could be like a little hobby that might bring in a little extra money. Well, when places like CJ, CB etc. asked for a SSN or Tax EIN, I figured that ANYTHING I spend on the business is deductible. So I deduct adwords, hosting, domains, ebooks, software, memberships, autoresponder, etc. I keep a record in a spreadsheet of everything, even if it’s a ten cent ebook.
Here’s where I draw the line. I don’t even consider deducting things like a portion of my home, furniture, or even internet access. These are things I would be paying for anyway in the absence of marketing, and would not be normally deductible, so why get greedy? In the past, I’ve heard these things are big red flags that will invite an audit. With my above deduction policy, I do not fear an audit.
If however you feel the need to deduct things like a portion of your home, furniture, TV, etc., be prepared to prove that you use it EXCLUSIVELY for your business. I prefer it not even come into question, so I don’t consider it.
As for paying a CPA, this is great if you have the money and want to save a lot of time. I did that for about eight years at $300 per year. Then she quit the business and I had to find someone else. That year cost me $475. I thought there must be a better way. So I got a copy of TurboTax for that year and I entered all the info I gave the CPA. Lo and behold, TurboTax spit out the the exact same return I just paid $475 for. Now I’ve used TT two years in a row and I just got my 2007 copy. No more CPAs unless I get rich. Oh, and the cost of TurboTax is deductible.
Scott
January 16th, 2008 at 12:20 pm
@Scott: I would agree with you, but honestly, if I were to be audited, I’m not really worried as long as I’m being honest. As far as TurboTax goes, I just picked up a copy to see how it goes for this tax season. I’m not sure how it’ll pan out though. We’ll see.