This post originally appeared on Cowgirl Runs.
Disclaimer: While I am a designated accountant, I am not your accountant. If you have any specific questions, I recommend you discuss those with a designated accountant. Don’t know one? I recommend me!
A note: I’ve been immersed in the world of accounting since 2004, so if there’s anything here you don’t understand, please tell me! I don’t want anyone to feel lost of confused when I’m trying to make things a bit easier!
Okay friends, here we go, the third installment in the Accounting for Bloggers series. (I thought I could cover everything in 3 parts and 1 FAQ, but now it’ll be 4 parts and 1 FAQ – if there’s anything you’re unsure of, or if there’s something I haven’t covered here, let me know!)
Today we’re going to talk about filing your taxes – what you need to know and what you might want to consider.
Again, this is going to be pretty technical, so grab yourself a cup of coffee and let’s drive on in.
Accounting for Bloggers
I’m going to talk about three possible scenarios:
- Blogger earning occasional income
- Sole proprietorship
- Corporation (I’ll discuss this next week)
Blogger earning occasional income
You have a blog, but you don’t really consider it your business, and you make some money through advertising and maybe the occasional paid review.
Sound like you?
Then you’ll want to pay the most attention to this section 🙂
No matter how much I googled and searched and prodded, I was unable to find something that said bloggers need not report income, even if it’s small. The Canada Revenue Agency (CRA) does have a list of items that are not taxed, and blogging income is not one of those items.
Based upon that, you’ll want to keep track of your income and report it on your T1 return.
The next issue is one of where to report the income on your return. Again, I was unable to locate any explicit instructions on where to report income, but based upon the return, you can report your income in one of two places.
Line 104 – Other employment income
Line 130 – Other income
Since it’s unlikely you are actually employed by your blog (from above, you’re just including periodic income), line 130 makes the most sense.
It’s important to note that the CRA considers all income income and you are required to report it on your return. Also, goods and services (product received for review, or any other benefits as part of a relationship) are considered income – not just payments you’ve received. These should also be included on your return. (Note the line called “product received” on the income tracker.)
Since you are merely reporting ancillary income you won’t deduct any expenses against the income earned.
You are running your blog as a business and have both income and expenses to report on your return. Even if you don’t consider your blog a business, you may find it beneficial to report this way. That said, it’s important to note the CRA won’t appreciate it if you continually file and do not make a profit from the business, so if you’ve reported a loss for a number of years in a row, you may want to revisit your approach.
Reporting income and expenses
As you are a business, you will be required to fill out a T2125 – Statement of Business of Professional Activites form. Note that you do not require a business number in order to fill out this form.
The CRA asks for an Industry Code on the form. The best code for blogging would be 71153. It’s not exact, but it’s pretty darn close.
You’ll also want to record the URL of your blog since this is what you’re earning income from. (I read a post that said if you’re selling on eBay you also need to include eBay, but this may not be true. If you are selling depreciable property then the income rules do not apply. Consider selling a car, unless you got lucky, you are selling it for less than you initially paid for it. You are neither allowed to claim a loss on sale, nor gain related to the income. The net impact to you is zero).
You’ll want to work your way through the form using the tracker you downloaded in part 2.
The expenses listed here may not be what you think they mean, so I’m going to walk you through each of the categories. You can also find detailed information on the CRA website here.
- Advertising: include website hosting, business cards, paid ads (Facebook, sponsoring other bloggers)
- Meals and entertainment: you cannot deduct 100% of meals. If you treat another blogger to dinner, you may deduct 50% of the cost (think of it that you’re getting a deduction for their meal, but not yours). The same goes for any kind of sporting event, concert tickets, etc.
- Bad debts: if you previously reported income and have not been paid, you would expense it as a bad debt.
- Insurance: this does not include your home insurance, but rather insurance related to your business, should you require it.
- Interest: sorry kids, you can’t deduct credit card interest here, but rather interest incurred on money borrowed in order to start or operate the business.
- Business tax, fees, etc: these must be directly related to your business. Chances are, you probably don’t have anything to deduct here.
- Office expenses: this includes pens, pencils, stationery, etc but does not include large purchases like furniture or computers (we’ll get to that).
- Supplies: these are applicable if you’re selling goods and would include consumables required to provide the goods or services
- Legal, accounting, professional fees: if you paid a lawyer to set up your business, or paid an accountant to prepare your business taxes, include that here
- Rent: not the rent you pay to live, sorry, but rent on your business space
- Maintenance and repairs: likely not applicable, but if you’re renting a space and needed to fix it up a portion of that may be included here, or a portion may be considered a leasehold expense (which I won’t get into, but if you have questions, please contact me)
- Salaries, wages, benefits: if you have employees, include their wages and any EI, CPP paid by the business here
- Property taxes: not related to your home, but your place of business
- Travel: you are only permitted to deduct travel expenses directly related to operating your business
- Telephone and utilities: again, this would relate to owning (or renting) a business specific location
- Fuel costs: as most bloggers aren’t using any fuel to blog, let’s just assume this doesn’t apply
- Delivery, freight and express: again, likely not applicable. Any postage costs related to your blog would best be classified as an office expense.
- Motor vehicle expenses: it’s unlikely your vehicle is directly tied to your ability to earn income from your blog; however, if you are required to drive periodically, you will need to keep a mileage log to support your claim.
- Allowance on eligible capital property: this is likely not applicable as you would need to have purchased a franchise, or goodwill for this to apply
- Capital cost allowance: this is something that will probably apply to bloggers (wondering about your computer and software – it’ll go here) but I’m going to talk about it in a different section.
- Other expenses: if you attended a blogging conference (BlogFest, maybe?) your feeds to attend the conference can be included here (and your travel costs would be included in the travel section above).
Business use of home
Unless you’re making a gajillion dollars of your blog, you probably blog from home in the evenings. The CRA permits you to deduct a portion of your home expenses as they relate to your business.
I dislike the way this form is laid out, as it deducts the persona use part of your home, whereas I find it easier to determine what part relates to your home office and multiply the total expenses by that amount.
To keep things easy for you here’s a spreadsheet I prepared that will determine the amount of personal vs business expenses for this calculation.
If you don’t feel like downloading a spreadsheet, here’s a simplified example from the CRA website.
You’ll also see there’s a place to deduct Capital Cost Allowance (CCA) against your home. A word of advice do not do this. If you claim a deduction against your home you will lose the principal residence exemption and will likely need to pay taxes on any gain on the sale of your home. You don’t want to do this.
Capital Cost Allowance (CCA)
If you don’t already hate me, you may after this section.
You’ve probably noticed that I didn’t give you a place to deduct your laptop. The laptop you use to, you know, blog. What about that?!
Well, my friend, your laptop is considered capital property (ie. it lasts for longer than just a few months) and such, you can’t expense it all at once, but you try to “match” it to the time you receive the benefit.
Now, you don’t get to pick how long you get to expense your laptop, the CRA decides for you by classes.
Any assets purchased as part of your business will likely fall into one of 15 classes. I’m not going to list them all for you, but have identified the most likely classes below. Each class permits to you deduct a different percentage of the cost of the asset (as defined by the CRA).
- Class 8 – furniture (office desk, chair, etc)
- Class 12 – computer software (if you’re paying a monthly fee for access to site, then you do not own the software and would expense it as part of your business expenses above)
- Class 50 – computer hardware (your laptop!)
- Class 52 – computer operating systems (if you’ve paid to upgrade Windows or OS)
As a blogger, you’re probably also connected to your phone nearly 24/7. It is unclear where an iPhone should be classified, but it would fit in either class 8 or 52.
I recommend using tax software (good ones include TurboTax and UFile) that supports personal business income as it will perform the calculations for you (this is what I do).
Filing your taxes
I have a plea – please please please do not take your taxes to one of those places with a green logo that “specializes” in taxes and offers you your refund on the spot. Just. Don’t.
1 – they are generally not tax experts
2 – they’re just using a version of TurboTax and I promise you, you can do it yourself
No. Seriously. You can do it yourself!
A few weeks ago I urged a fellow blogger (via Twitter) to give doing her taxes herself a stab. An hour later she was done and had saved over $70 by doing it herself!
If you try it yourself and get stuck – reach out to me! I promise I will do my best to help you and provide advice.
Now, I’m not advocating for doing it long hand on paper, but you can spend $30 on TurboTax and it will walk you through all the calculations and tell you where to enter amounts and what amounts are able to be included. It will also link supporting schedules (like the T2125) to your general return.
If your taxes are complex, please seek out a tax professional (CPA) and have them do your taxes.Taxes don't have to be scary! Ange walks you through filing in Canada #blogchat #taxesClick To Tweet
Do you feel more comfortable filing your taxes – or scared?
Do you have any questions I didn’t answer in my post? Leave a comment and I’ll be sure to include it in my FAQ post.
Next week I’ll be talking about filing a corporate tax return and the following week I’ll answer questions you may have.
Accounting for Bloggers: How to Structure Your Business
Accounting for Bloggers: How to Track Income and Expenses
Accounting for Bloggers: Filing Your Taxes (sole proprietorship)
Accounting for Bloggers: Filing Your Taxes (corporation)
Accounting for Bloggers: Frequently Asked Questions