Blogging businesses have become extremely popular because, if done correctly, they can be highly profitable. I’m sharing my experience using my blogging income to catch up with retirement contributions. However, what most people, including myself, is that when you start making money through a blog, there are some things you need to consider, such as taxes, setting up an LLC, paying yourself, and setting up a budget. I will share what I’ve learned from running my blog business.
Disclaimer: I am not a financial advisor. The information in this article is based on my experience running a blog business. Therefore, it should not be taken as financial advice.
As an entrepreneur, you have to make decisions that make the most financial sense for you and your blog business. So let’s look at some of the decisions you’ll need to consider when running a blog business. These were all decisions that I made in my blogging business in 2022.
These business blog tips are geared around anyone who resides in the United States. Unfortunately, I am not versed in the legalities outside of the United States.
#1 Define Your Blog Business
The IRS expects you to define the type of business you’re running. However, you don’t need to invest in a business plan or take months trying to decide what type of blog you will start.
I have over five niche sites, and I’ve never set up a business plan.
Some people will set up a blog about traveling, cooking, beauty, or fitness. More and more people are setting up blogs about their hobbies.
But, regardless of what you blog about, the IRS will want a piece of the pie.
For example, you start a blog as a hobby without any intentions of earning money, so you don’t add affiliate links, ads, or anything else that makes money. Your intention is not to make money.
You won’t be able to deduct any expenses associated with the blog. This includes the domain, hosting account, themes, plugins, etc.
That said, we all start as hobby bloggers. It took me over six years to earn significant money from my blog, and I still filed taxes yearly.
That said, I usually got a refund from all the estimated taxes that I paid those lean years in business. I’ll discuss estimated payments later on, so keep reading.
Some people say that the IRS gives you five years to go from a hobby blogger to one that is profitable. However, I’m here to tell you that’s not true.
It took me over six years to become profitable, and the IRS did not tell me that I needed to shut down my blog. I was unprofitable for over 13 years because I had other unsuccessful businesses before my blogging business.
This is why I’m trying to play catch up on my retirement now because it took me so long to start earning money.
The IRS considers blogging a business if done with the intention of making money.
If you’re blogging to share your experiences and not-for-profit, you don’t have to worry about paying self-employment taxes. However, as soon as your blog makes money, you must report it.
#2 Treat Your Blog Like A Business
Once your blog is past the hobby stage and earning money, it’s time to decide on the legal status of your blog business. Most people think they need to incorporate their business from day one. However, it’s best to wait until your blog is making money.
This is because forming a business costs money and has both legal and tax implications.
When I set up my single-member LLC in 2022, I read tons of blogs, watched YouTube videos, and listened to podcasts to find out the best path.
If you need help determining which business structure to use for your blog, consult an accountant or lawyer to determine which structure is best for your business and personal circumstances.
The most common business structures for bloggers are:
Sole Proprietor
A sole proprietor is a single business owner who controls the business. Still, they are personally liable for all debts and obligations. It doesn’t require any special paperwork or fees. As soon as you set up your business, you’re automatically considered a sole proprietor.
As a sole proprietor, you’re considered a flow-through entity.
You’re not a separate entity from your business, so all the income you earn from your blog goes directly onto your personal tax return.
Limited Liability Company (LLC)
An LLC is a limited liability company, meaning your business assets are protected from your personal assets. This means that you, as the LLC owner, are generally not held liable for lawsuits or debts held by the LLC.
That said, the LLC protection is dependent that you don’t “pierce the corporate veil.”
Yeah, I had no clue what that meant, either. But it means you can’t mix your business and personal expenses and must keep records of document meetings, etc. This video will explain this much better than I can.
S-Corp
An S-Corp is the best legal tax structure for your business because it provides the most tax benefits. An S-Corp is a tax election, not a legal structure. The government recognizes an S-Corp as a corporation.
As an S-Corp owner, you’re no longer the owner of your blog business, you become the employee, and your business pays you a W-2 salary.
As an S-Corp owner, you must pay yourself a reasonable salary or compensation for your work as a blogger. However, unlike an LLC business owner, if you have a bad month, you’re not required to take distributions or pay yourself from your business income.
While an S-Corp helps reduce self-employment taxes, it’s the most expensive business structure to maintain. In addition, there are ongoing accounting and legal costs to consider.
I was considering forming an S-Corp, but after doing a lot of research, I decided to set up my business structure as an LLC. I’d rather pay more taxes now than create an S-Corp too soon.
Plus, if you can’t afford to keep up your S-Corp fees, you’ll have to dissolve it, which is more challenging than it sounds.
Once my blog starts netting over $100k per year, I’ll either set my business up as S-Corp or keep my LLC and file as an S-Corp.
I’m not sure yet, but I’ll update you once I reach that stage in my business.
This video will explain the best time to switch from an LLC to an S-Corp.
I know that self-employment taxes are crazy. Before contributing to my solo 401k, I owe over $19k in taxes for 2022,
However, my blogging income is not as consistent as I’d like it to be. So I’m not ready to take my business to the S-Corp level yet.
#3 Get a Tax ID Number
A tax ID or EIN, while optional if you’re working as a sole proprietor. Having one will prevent you from sharing your social security number (SSN) with affiliate companies, ad networks, random brand or PR companies, etc.
It is a 9-digit number you apply via the IRS website. It’s free, and you get an EIN instantly.
As a sole proprietor, you’ll file your taxes using your social security number and combine the income from your EIN. Turbotax and other tax software make it extremely easy to do.
You’ll need to file for a new EIN number when you change your business structure.
#4 Don’t Use Your Home Address
One of the biggest mistakes most new bloggers make (myself included) is they use their home address for their blog business.
While you can use your home address as a blogger if your state allows it, however, the downside is your address becomes public.
When I filed my LLC last year, I used my personal address. Unfortunately, your address will be publicly available when you file an LLC in North Carolina. I don’t know how it works in other states, so I recommend checking before filing your LLC.
So this year, I purchased a virtual address from iPostal1, which allows me to use a physical business address for my LLC, blog, emails, etc. You can check out my virtual address on my contact page.
Adding an address and phone number where people can reach you makes your blog look more professional, plus Google loves it.
The downside is that getting a virtual address or mailbox costs money. So you’ll have to decide if it’s worth it or if you just want to use your home address.
#5 Open A Business Checking Account
One of the biggest mistakes I made for several years was using my personal checking account for business.
Last year, after setting up my LLC, I opened up my business checking account with JPMorgan Chase bank. Let me tell you, it makes filing taxes and paying myself so much easier.
If you’re looking for a business bank, I recommend JPMorgan Chase. I’ve been with them for a year and have been very happy.
#6 Open A Business Savings Account
After you’re done opening your business checking account, go ahead and open a business savings account. A business savings account makes it easy to keep your tax money and business money separate.
I NEVER touch the money inside my business savings account, until it comes time to pay my taxes. If you leave your money inside your business checking account, it’d be so easy to overspend on business expenses and come up short on your taxes.
It’s so easy to set up a savings account and you won’t have to worry about not having enough come tax season. After spending hours researching different business bank accounts, I signed up with Axos. After a year with them, I’m very happy with them.
The only thing I hate is that I don’t make a lot of interest on my account, even with a big balance. However, you’re not saving the money to earn money, you’re keeping the money to stay out of hot water with the IRS.
#7 When Should You Hire A CPA?
For the first several years, I filed my own taxes using Turbo Tax. The home business version makes it extremely easy to do it yourself. Plus, I figured my business wasn’t making much money at the beginning why should I pay for a CPA?
That said, this year, I finally decided to hire a CPA. It was one of the most challenging things to do because I had no clue how to hire one or what to look for in a CPA.
After hearing about him on some Facebook groups, I ended up hiring Ben Watson from Fiscal Fluency to do my taxes.
Let me tell you. It’s one of the best decisions I’ve made for my business. I let him know that because of my age and the fact that I’m behind on my retirement contributions, I want to minimize my taxes by putting as much as I can into my solo 401k.
Most bloggers avoid hiring a CPA because they don’t want to spend the money. However, a CPA can help you save money in the long run, plus they can help you plan for retirement and minimize your taxes.
If you’re paying a lot in self-employment taxes, I’d recommend hiring a CPA. It’s worth it in the long run.
#8 Know What Expenses You Can Deduct
As a blogger, you’re allowed to deduct business related expenses. That said, these expenses must be related to your blogging business. You won’t be able to deduct vehicle mileage, unless you rent out office space.
Below are some of the most common tax deductions for bloggers:
- Stock photos
- Themes and plugins
- Hosting
- Advertising on other blogs, social media, etc.
- Your camera and tripod for recording videos or taking photos for your blog.
- Your computer and laptop
- Paypal fees
- Blogging-related courses or educational courses that help you grow your business.
- Blog coaching/consulting
- Office chairs (I bought a Herman Miller last year)
- Chair Mats (I got a Vitrazza glass chair mat)
- Fonts
- Turbo tax or any tax software to file your taxes.
- Budgeting and accounting apps
- Standing desks
- Start-up costs
- Content outsourcing (I deducted over $29,000 in content last year) It’s one of my biggest deductions every year.
- Expenses from flipping a website (I’ll be flipping one of my sites this year)
- Computer equipment (ergonomic keyboards, a new mouse, USB cords, etc.
- Membership and conference fees
Anything you use to grow or use in your business, chances are it is tax deductible. So anytime you buy something to use for your business, make sure you add it to your spreadsheet. That’s what I do, and it makes filing my taxes much easier.
If you’re unsure if it is a tax deduction, you can always ask your CPA at the end of the year.
#9 Keep Track of Business Income
As a business owner, you must keep track of every dime your business earns and spends. All income has to be filed during tax season. Bloggers making more than $400 must file taxes with the IRS.
Check your state to see the laws for your state, as the laws vary from state to state.
I recommend setting up a spreadsheet where you track all your income and expenses. You don’t have to use expensive software like FreshBooks, QuickBooks, or any other software program.
While you can, and if that’s your preference, I prefer to do it the old-school way. So I’ve created a spreadsheet template, which is broken up into different tabs.
Here’s a snapshot of how the template looks. You can download a blank copy of my spreadsheet here if you’re not ready to pay for an expensive software. Make sure you create a copy of the template before downloading, that way you can edit it and make any changes.
You can see that I have different tabs on the spreadsheet for the following:
- Income: This is the amount of income that gets deposited into my business bank account monthly.
- Business Expenses: This is where I list all my business expenses for the year.
- Utilities: As a home business owner, you can write off a percentage of your utilities, rent, and cellphone service. So whenever I get my monthly bill, I put the amount on the spreadsheet.
- Estimated Taxes: As a blogger, you must pay quarterly taxes to avoid penalties. This is where I put the amount I pay each quarter.
- Solo 401k: This is where I put the amounts I fund to the solo 401k during the year. If you only fund it once per year, you don’t need this tab.
- Personal Payments: Even though an LLC is a flow-through entity, I still like to track how much money I pay myself throughout the year.
I make sure that I keep the spreadsheet updated properly throughout the year. Then when it’s time to file taxes, I send a copy to my CPA.
Accounting and budgeting for your blogging business doesn’t have to cost you a lot. The important thing is to find a method that works for you.
#10 Understand The Difference Between Net Vs. Gross Profit
I had no clue what the difference was between gross and net. It wasn’t until I started my blog business that I realized the difference. Gross profit is the total revenue earned before subtracting business expenses, taxes, etc. Net profit is gross income minus other expenses like rent, utilities, taxes, etc.
Why is this important to know as a blogger? Net profit is what you have left after all the expenses. It’s also what you’ll use to pay yourself after you’ve put aside your taxes and other business expenses.
#11 How Much Should You Pay Yourself?
This answer will vary depending on your personal preferences, business structure, and how much you earn. So, I’ll share how I pay myself as a blogger.
At the time of this writing, I’m averaging about 9-10k per month. As soon as the money hits my business account, I transfer 20-30% of that income to my business savings account for tax purposes.
After my taxes are transferred to my savings, I leave enough in my business account for any expenses I know I’ll have to pay during the month. This includes expenses such as outsourcing content, buying a course, paying for services, etc.
Then I pay myself from anything left over. I’ve been paying myself $3,000 per month on average, but if I have a slow month online, I will pay myself less. Unfortunately, since I rely primarily on ads and affiliate income, so my income varies quite a bit.
Blogging income isn’t as consistent as a regular paycheck, which is why some people are scared to quit their regular job.
#12 Open A Solo Instead of A SEP
If you come from the employee world, you’ve likely contributed to a 401k. As a self-employed individual, you can contribute as well. You can choose between a Solo 401k (Simple IRA) and a SEP IRA.
There’s a vast difference in the amounts you can save, so I recommend reading up on the differences.
While I’m not a tax professional, here’s what I learned while doing my due diligence.
A Simplified Employee Pension (SEP) IRA allows individuals to contribute up to 25% of your blogging salary or $66,000, whichever is less. It’s similar to how an employee 401k works; you’re only allowed to contribute as an employee.
A Simple IRA (Solo) stands for Savings Incentive Match Plan for Employee’s Individual Retirement Account. I know this sounds confusing, and I was confused at first, too. But this plan allows you to contribute as both the employee and business owner.
I opted for a solo 401k instead of a SEP because I can contribute more yearly, which helps you save on your self-employment taxes. The amount you can contribute to a Solo 401k changes yearly, but here’s how much you can contribute in 2023.
- Employment deferral: $22,500
- Employer Contribution or profit sharing: $43,500
- Catch-up Contribution (over the age of 50): $7,500 (the same as a Roth IRA)
- Total Contribution Limit: $66,000 or $73,500 for those over 50 years old
If you’re behind on your retirement like I am, the Solo 401k will help you catch up on your savings quickly.
I opened up my traditional Solo 401k last year, and here’s how much I saved on my taxes on a net profit of $64,819. I haven’t made the contribution yet at the time of this writing, but I have until April 15th to contribute.
According to my CPA, I would’ve been able to contribute a total of $38,797 to my 401k for 2022. However, I only had $31,000 in my savings account to pay for my taxes and my 401k.
So below are the amounts I’ll be paying to my 401k.
- 401k – $27,000 maxed out
- Profit Sharing – $1,500
This would require $20,937 from the available $31,000 to be placed in a traditional tax-deferred retirement Individual 401k (Placing it in a ROTH 401k will not produce the same result).
Result:
- Bonus $200 retirement savings credit
- Only $473 Health Insurance credit repayment (included in Fed liability below)
- $9,362 Federal tax liability with minimal underpayment penalty applied ($301)
- $342 NC tax liability (with no underpayment penalties)
Total funds required:
- $19,437 to max out 401k employee contribution (including catch-up)
- $1,500 for profit-sharing contribution
- $9,362 federal tax payment
- 342 NC tax payment
TOTAL Funds Needed: $30,641
With me putting $27k in my Solo 401k plus maxing out my Roth IRA, it won’t take long to get back on track for retirement just by investing my blog income.
Without a Solo 401k, I would be paying a lot more in Federal and State taxes. If you’re save money on taxes, you’ll need to open a traditional 401k.
In 2021, I netted a lot less income but ended up paying over 10k in Federal taxes and almost 2k in state taxes.
If you haven’t set up your Solo 401k, I highly recommend it. I’ll share how I opened mine with Fidelity.
Not sure which one is right for you, watch this video.
#13 Invest As Much As You Can
I love blogging, but with the recent launch of AI, I’m not sure how it will affect blogging. Some people say it’ll have a huge impact, while others say it won’t have a negative impact.
Regardless of what happens, I make it a point to invest a considerable portion of my blog income.
There are several ways to invest your blog income. I invest in dividend stocks, ETFs, index funds, and growth stocks in my brokerage account.
My goal is to create some passive income streams so that I don’t always have to blog. While blogging is semi-passive, if you let a blog sit without activity for a long time, eventually, it will start to die.
Investing in dividend stocks is completely passive, and once you buy them, all you have to do is reinvest the dividends. However, investing in stocks can be risky, so I diversify my investments by also investing in ETFs and index funds.
I’m not a financial advisor or anything like that, but I do believe it’s important to invest your blog income instead of spending it all.
#14 Don’t Spend All Your Money
It’s exciting when your blog starts making money, especially if you’ve never made money online Blogging can be a profitable side hustle that can turn into a full-time income. However, before spending all your money, make sure you put some aside for Uncle Sam.
According to several online sites, anyone self-employed should set aside 30-40% of their income for tax purposes. The last thing you want to do is find yourself not saving enough when it comes time to pay taxes.
Taxes are due on April 15th of every year, and if you owe money, you’re required to pay. Every quarter, I set aside 25% of my blog income for taxes. Depending on how much you make, you may or may not be required to pay estimated tax payments.
My goal is to always have enough in savings so that I can easily cover any taxes due. That way, when April 15th rolls around, I don’t have to worry about coming up with the money.
If you plan on making a lot of money blogging, I suggest talking to an accountant to figure out how much you should be setting aside for taxes each quarter.
#15 Should You Pay Estimated Taxes to Avoid Penalties?
Everyone says that bloggers and self-employed people should pay estimated taxes. At least, that’s what I used to do. However, after listening to the Keep What You Earn podcast, I think differently about paying estimated taxes.
Of course, everyone is different, so you have to do what you feel is right.
According to the IRS, self-employed or independent contractors are expected to pay a percentage of their income through quarterly estimated taxes. Sole Proprietor’s and LLC members that earn 1099 income, must pay self employment taxes on all income earned.
These taxes are paid four times throughout the year. Paying these taxes throughout the year is that it limits the tax liability throughout the year.
Married individuals have to pay around 30%, while single individuals will pay closer to 40% of their net income.
2022 was the first year that I chose not to pay estimated taxes. Why did I run my business this way? I chose to do it because I wanted to have more money on hand to outsource content.
Remember, as a blogger; we don’t make the same money each quarter.
For example, let’s say you launched a product in quarter one and had a great first quarter.
However, your income dropped or stayed stagnant for the last three quarters. If you paid 30% or more in estimated taxes at the end of the first quarter, you no longer have money to outsource or grow your business.
I’ve stopped paying my estimated taxes for the foreseeable future.
That said, I always ensure that I put 30-40% of my blog profit into my business savings account. That way, when the time comes to pay my taxes, I have it in my savings account. Because while you can defer them, you will be required to pay them.
That said, it’s essential to know that you’ll be required to pay a penalty for not paying estimated taxes. For example, I had to pay a $301 Federal underpayment penalty in 2022.
I’m not a fan of paying penalties, but I’d rather reinvest in my business than give the government my money.
Also, my blog income is so inconsistent, especially with the drop in RPMs, I’m not sure how much I’ll earn this year. The last thing I want to do is send the government my money.
That said, if your blog makes multiple six figures or more consistent money, you may be better off paying your estimated taxes on time to avoid penalties.
#16 Should You Quit Your Job?
Most people who start a blog have the goal of quitting their job. I know because I was one of those people who walked away from a job with benefits and good pay. I’m not saying you shouldn’t leave a job if that’s what you want to do.
However, before you leave your job, it’s essential to know that blogging is a business. Like any other business, it takes time to make money.
Once you leave your day job, you’re also walking away from a dependable paycheck, healthcare benefits, and other perks that come with a full-time job.
Before quitting your job, make sure you have at least six months’ worth of living expenses saved up. This will help you sleep better at night while you work on building your blog business.
I walked away from my day job before making a penny and had to file for bankruptcy due to financial hardships.
It’s also one of the reasons that I’m trying to catch up with my retirement contributions.
Unfortunately, it took me a long time to earn money online, so I went years without contributing to my retirement.
Blogging is a great side gig you can do after you get off work or on the weekends.
Most successful bloggers I know quit their day job when they were making at least five figures per month in blogging income.
That said, if you have the financial means to walk away and you’re sure that blogging is what you want to do, then go for it!
#17 Know The Important Dates
As a self-employed individual, you need to add several important dates to your calendar. This includes Annual Report Renewal (renewing your LLC), estimated tax due dates, 401k contributions, and year-end tax filing deadline.
The key here is to stay ahead of the game to avoid penalties. One way I stay organized is by using a calendar app, which I use to store my tax-related deadlines.
If you set up an LLC or S-Corp, you must file additional forms with your business taxes each year. Therefore, it’s important to remember these dates and make sure you file your taxes on time and accurately.
Final Word
The Internet makes it so easy for anyone to set up a blog. However, most of us (myself included) don’t come from entrepreneurial backgrounds or understand finance.
Instead, we’ve been employees our whole lives, so setting up a blog business can seem daunting.
2022 was the first year I made over six figures in gross income from my blogs. It was also the first year I treated it as a real business.
I set up an LLC, business checking and savings account, and solo 401k and hired a CPA.
Hopefully, my experiences will help you understand the steps you need to take and when you should take them when starting your blog business.
Remember, if you don’t treat it like a business, it’ll be hard to know how much you owe in taxes, how much you should be paying yourself, and other vital questions.
Treating it like a business will ensure long-term success.
Related Articles
Sources
https://turbotax.intuit.com/tax-tips/self-employment-taxes/tax-tips-for-bloggers/L8hqquuc9
https://electscorp.com/common-mistakes-made-by-s-corp-owners/
https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations
https://www.investopedia.com/terms/l/llc.asp
https://smartasset.com/retirement/simple-ira-vs-sep-ira
https://www.irs.gov/pub/irs-tege/forum15_sep_simple_avoiding_pitfalls.pdf
