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  1. #1
    SitePoint Wizard CLKeenan's Avatar
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    How do you go about filing taxes for your advertising income?

    Hello, I'm 17, still live with my parents, etc and will need to be paying taxes this year for my US history resource page. I will be making around $1200/month from advertising on the site (Adsense/FastClick... mostly Fastclick).

    How exactly do I go about filing taxes for this income?

    Any general tips would be much appreciated.

    Thanks,
    -Chris

  2. #2
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    Self-employment income. 1040 and, I believe, Schedule C forms. Hopefully, you have been keeping track of your deductions (work related expences you can write off like hosting, domain registration, etc). You should be saving about %25-30 of your earnings for taxes. Even though you'll be in the 15% tax bracket (based on 1200x12 months), there's a fun self-employment tax (social security and medicare) that runs another 15% of your net earnings.

    Make sure to do this with your parents. You guys will need to figure out whether you made too much for them to claim you as a dependent.

    Also, you'll have to make quarterly payments next year based on your estimated income (that's how taxes work for the self-employed) otherwise you'll get penalized. You should be ok for this year if you didn't file as self-employed last year.

    Anyway, I hope that gets you started, but I'm a long ways from being a tax advisor (not to mention it's late and I'm half-asleep) and most other people on webmaster forums aren't either, so please do your own research for this. There's lots of stuff out there on the net.

  3. #3
    SitePoint Zealot TheOtherOne's Avatar
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    I was sent a 1099-MISC from FastClick. I filled out Schedule C and included it as income and then added up all my expenses (mainly hosting costs). Paid taxes on the profit.

  4. #4
    SitePoint Wizard Lil_Red's Avatar
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    The best thing would be for you and your parents to go talk to a tax accountant.

  5. #5
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    Quote Originally Posted by CLKeenan
    Hello, I'm 17, still live with my parents, etc and will need to be paying taxes this year for my US history resource page. I will be making around $1200/month from advertising on the site (Adsense/FastClick... mostly Fastclick).

    How exactly do I go about filing taxes for this income?

    Any general tips would be much appreciated.

    Thanks,
    -Chris
    Out of curiousity, how many uniques a day does your site get?

  6. #6
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    My system is pretty simple but works well. I have an excel spreadsheet with two columns - income and expenses. I save all my receipts and invoices in a folder. At the end of the year I give the spreadsheet and folder to my accountant. He does the whole thing for me - files and everything - for only 150 bucks. He even gives me everything back spiral bound for my records. It's cheap, easy, and I have extensive records in case I was audited.

    I imagine that most accountants are more expensive but I'm sure if you shop around you can find a good deal.

    Regarding quarterly payments - if you are only making about 1000 a month you don't need to worry too much about that. The penalty you end up paying is so minor that I choose to pay a small fine rather than deal with the hassle of payments throughout the year.

  7. #7
    SitePoint Wizard CLKeenan's Avatar
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    would web design/custom coding work be included in expense?

    I'm receiving 8k+ uniques a day.

  8. #8
    SitePoint Wizard Lil_Red's Avatar
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    Quote Originally Posted by CLKeenan
    would web design/custom coding work be included in expense?

    I'm receiving 8k+ uniques a day.
    Don't ask here. Talk to an accountant.


    I am not an accountant but unless you are drawing an actual salary, coding is not an expense.

  9. #9
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    Anything you pay for is an expense. If you pay a person more than xxx a year you need them to fill out a 1099. Although a lot of my contractors are overseas so a 1099 isn't valid. My accountant doesn't seem to be worried about overseas contractors and 1099's.

    It would be a good idea to schedule an appointment with an accountant to go over this stuff.

    Lots of stuff can be written off. I sometimes take my clients out for dinner and drinks - and that's a write off for sure. You need to know the details of such things, like keeping the receipts and writing on the receipt what business is discussed etc.

  10. #10
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    > would web design/custom coding work be included in expense?

    If you paid someone to do that for your site, absolutely yes it is a legitimate expense. Plus hosting, advertising, etc. You don't need an accountant to tell you that.

    What you can't do is say "I coded this myself, but if I did it for someone else, I'd charge them $1000, so I will deduct that $1000." You can't deduct the value of your own labor.

    How do you promote your site? 8000 visitors would be a great week for me, let alone a day.

    If you talk to an accountant, ask him about incorporating. When you start making a lot more, it may make sense for you tax-wise to do that.

  11. #11
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    Also, I hope you are putting some of that money in an IRA or other retirement account. Since your tax bracket is low based on the amounts you mention, I'd put the max allowable in a Roth, which I think is still $3000. That's from after-tax income, but then it grows tax free, and you might be amazed how much it will grow to by retirement time.

    At your age (under 24) as a full-time student, I don't think your income has a limit as far as your parents still claiming you as a dependent. At least that's what the IRS site says.

  12. #12
    SitePoint Wizard CLKeenan's Avatar
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    Thanks for the great info guys - I really appreciate it. I will definately be scheduling an appointment shortly with an accountant.

    >How do you promote your site? 8000 visitors would be a great week for me, let alone a day.

    I actually do not promote my site at all. It was originally created as a small class project but when it started getting in the top ranks on google I realized its potential and started expanding the site. But the growth is completely natural.

  13. #13
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    Quote Originally Posted by FloridaFlyer
    Also, I hope you are putting some of that money in an IRA or other retirement account.
    Why would you put away money for retirement at 17?

    Save it for college. Trust me you'll need it.

  14. #14
    SitePoint Wizard Anat's Avatar
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    I'm glad you're going to see an accountant. My only tip is that if the advice given doesn't make sense to you - get a second opinion. Don't save money on advice when it comes to setting up your tax records.

    When I started out several years ago, the accountant and lawyer that I went to were so thrilled by my "dot com" business, they shot for the sky. They suggested setting up a registered company for tax purposes. What a mistake! It took me several years to actually start making money and running a company costs money (paid mainly to lawyers and accountants ), not to mention the paperwork involved. I closed the company within one year as it was just losing me money and taking up too much time. Because companies need more accountancy paperwork, and I tried to save on accountant fees and asked a friend to help instead, I had problems with the paperwork which ended up costing me $200 in fines. In short, the whole inc. story was a fiasco. Reason I'm telling you all of this - when you do go to see an accountant, make sure their advice makes sense to you. If you feel you're not comfortable with it - see another accountant.
    My Web Publishing Blog: B6S.net - I dofollow but don't spam!
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  15. #15
    SitePoint Addict AndyH's Avatar
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    If you go and see a tax lawyer make sure the amount they quote to set up something up (trust, companies etc.) is not loads - personally, the first I went to wanted $30,000 for something that I got for $5,000 with another firm.

  16. #16
    SitePoint Wizard Lil_Red's Avatar
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    Quote Originally Posted by paladin
    Why would you put away money for retirement at 17?

    Save it for college. Trust me you'll need it.
    You can't start saving for retirement too soon. It's actually a very smart idea to start a retirement fund. A lot of young people think it's so far away that they can wait. Before you know it, you're 30 and have a mountain of debt and no money available to put toward retirement.

  17. #17
    SitePoint Wizard CLKeenan's Avatar
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    what would be some of the advantages of incorporating?

  18. #18
    SitePoint Wizard Lil_Red's Avatar
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    Some of the advantages of incorporating:
    - separates your personal assets from the business assets
    - your debt and the corporation's debts are separate (the corporation is responsible for its' debts)
    - corporation continues even if you die

    Disadvantages:
    - you have to be in compliance with your state's laws regarding incorporation
    - a corporation is required to have a board of directors, corporate officers, annual shareholders meetings
    - a corporation has to maintain separate books and records

    There are other things but these are just a few that spring to mind.

  19. #19
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    Of course coding is still an expense. You're still a sole proprietorship, regardless of whether you incorporate or not. Server fees, domain names, coding, the history books you use for the website, etc. are ALL expenses as long as you are legitimately paying for them.

    An expense is simply anything payment that is made to generate future revenue. So, any money you put into your for-profit website is an expense.

  20. #20
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    Quote Originally Posted by bcantor
    You're still a sole proprietorship, regardless of whether you incorporate or not.
    Not really. A sole proprietorship is generally regarded as a non-corporate entity. It's certainly possible to have a one person corporation, but that isn't the same thing as a sole proprietorship.

  21. #21
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    I was too ambiguous with my writing.

    What I meant is that right now, he's a sole proprietorship.

  22. #22
    SitePoint Wizard samsm's Avatar
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    There is a government agency set up to answer any question you may have about taxes. This service is provided free by the IRS.

    You can walk into an IRS office and basically ask them about any scenario you wish. When I've done it, it has been an anonymous process where I framed a hypothetical situation and they gave me a dry answer and a copy of the tax publication that applied. Any question. Free.

    If you live far from a tax office, you can call them.

    After meeting with the IRS you can decide to go at it yourself or you'll be on a higher plain when you go see an accountant. Either way, you are better prepared than you were.

    Remember that an accountant is not a free pass through the tax process. An accountant-prepared return can be audited just like one you prepare: and it is still you that will pay the price for inaccuracies. Basically, it makes sense to know what is going on and going to the IRS is a logical and free way to get prepared. Did I mention that it's free?
    Using your unpaid time to add free content to SitePoint Pty Ltd's portfolio?

  23. #23
    Hi there! Owen's Avatar
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    I'd like to add that that Quick Home and Business will help you keep track of your deductions and Turbo Tax contains a wizard for the small business taxes. You just enter all the 1099s and your expenses and it'll do the rest.

    Owen


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