Originally published on Forbes.com,
Blogging is coming of age as a business. How can I tell? Tax litigation. Kevin A. Clark Jr. was representing himself in Tax Court. It did not go well.
During 2012 Mr. Clark worked six to eight hours a day, seven days a week as a video blogger. He maintained an internet site and signed up with Google Adsense, which promises to “turn your passion into profit”.
Google paid Mr. Clark $20,206.57 and, as you would expect, sent him Form 1099-MISC. Here is the thing. You and I both want to take a look at Mr. Clark’s blog to figure out what it takes to squeeze twenty grand out of Google. Sorry, I could not find it in the time I allotted myself. Maybe one of the commenters will come through. Kevin Clark is a common enough name, that I was not even able to hone in on a particular person to make inquiries of.
Don’t Forget SE Tax
Mr. Clark dutifully reported the $20,206.57 on his 1040 as “Other Income” rather than filing a Schedule C. Not good enough according to the IRS. They also want Self-employment tax.
…..section 1401 imposes a tax on self-employment income, which under section 1402 includes “the gross income derived by an individual from any trade or business carried on by such individual”.
To explain the term “trade or business”, the U.S. Supreme Court has stated, “to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and * * * the taxpayer’s primary purpose for engaging in the activity must be for income or profit.”
Judge Gustafson ruled that the video blogging was, in fact, a trade or business. Mr. Clark contended that the income was “a type of royalty or commission from Google”. Unfortunately, even if the payments are considered royalties, they are still subject to self-employment tax.
How About Some Deductions?
What is odd about this case is that the subject of expenses did not come up. You will find a lot of specific tax guidance for bloggers. Turbo Tax has something. It specifically warns about self-employment tax.
Blogging is a relatively new profession, but it’s covered by the same tax laws that apply to many other occupations. The main danger from a tax perspective is that, as a self-employed blogger, your taxes won’t be automatically withheld from your earnings, as is typical with traditional employees. Additionally, you’ll owe self-employment taxes that most employees don’t pay. However, you may be able to take advantage of certain deductions to reduce your tax bill.
Melyssa Griffin has one of the numerous business advice sites for bloggers. I picked hers because I like the picture. In her piece “How To File Taxes As A Blogger” she suggests 26 specific deductions including home office, which given the level of effort Mr. Clark had might have been worth a shot, unless he works in his bedroom or something.
IRS Ahead Of The Bloggers For Now
The first blogger to ever go to Tax Court, Joshua Pingel, knew all about deductions. Revenue not so much. His was a hobby loss case. He lost. Nik Richie of thedirty.com was there about a missing K-1 and, as you would expect lost. So ]Mr. Clark makes the score IRS 3 – Bloggers 0. Maybe the next one up will be a tax blogger and she’ll win.
Other Coverage
The ink is still wet on this decision or maybe we should say the electrons are still excited, so you might think there would be no other coverage. You would be wrong. Lew Taishoff is almost always the first to cover Tax Court decisions and this one is no exception. As a matter of fact, I picked it up from his blog, which is not my usual MO. I generally look at the raw material first and only see what others have done with it after taking my poke.
Mr. Taishoff writes:
I ain’t made a dime out of this blog, but then again I don’t have any videos.
You know the rest. Kev was running a trade or business, and he was self-employed. Continuity, regularity and profitability are all there. Kev’s claim that what he got was “royalties or commisions (sic)” doesn’t matter either, because whatever you got from your trade or business is subject to FICA-FUTA.
Me, I’m in it for love.
That creates a dilemma for me and I have to settle if by saying that here is an instance, a rare instance, of Samuel Johnson being proven wrong. Mr. Taishoff, being even more of a literary tax blogger than I am would need to read no further to be aware of what is coming, but for the rest of you the remark of Dr. Johnson’s is:
No man but a blockhead ever wrote, except for money.