There’s nothing better than generating a decent passive income online and making money online. However, with that in mind, it is equally important to understand whether you need to pay taxes on your online income.
This is why it’s imperative that you first understand the tax implications of your online business, freelance job, or any other online gig that you do to earn passive income.
In light of this, we will talk about different online income sources and how you can pay taxes on your money.
When it comes to affiliate marketing, understand that you’re essentially self-employed. You’re not working for a company or are employed by a company.
But because you must create your own company to provide those affiliate services, taking care of your income tax is mandatory.
For instance, in the US, if you’re an affiliate marketer, there’s no need to pay any sales tax. Why? Well, that’s because you aren’t technically representing any company or product. Let’s take Honeygain as an example. It’s a data-sharing app that pays you for using your internet bandwidth.
However, they also have a referral program. This is where they will pay you commissions for referring their product to others. This income is not taxable.
You’re not the one selling it. It’s the other brand that you’re promoting. Similarly, no local taxes are levied on you, as you aren’t technically selling a product.
However, you must file for your state income or self-employment taxes. So, in the US, if you’re earning $600+ every month, you must pay quarterly taxes as per the IRS.
Online courses are generally taxable if the materials are intended for downloading, automated, or pre-recorded.
However, there are a lot of gray areas regarding taxation throughout the US. But thanks to the SSUTA agreement (Streamlined Sales and Use Tax), some helpful guidelines exist. These are:
If the online course is presented in real-time, you won’t have to pay any taxes.
If your students connect with you in real-time to learn what’s in the course, you won’t have to pay taxes.
The online course will not be taxed if a real human evaluates the students.
However, an online course will only be subject to sales tax if it is automated, pre-recorded, and/or the evaluation process involves any software.
3. Freelancer or Gig Worker
Regardless of whether you’re an independent contractor, a gig worker, or a freelancer, you’re legally accountable for your Medicare taxes and SS (social security).
Combined, both these factors make up 15.3% of the net profit you earn from your business. In light of this, here are some vital considerations to keep in mind when filing taxes as a freelancer:
You need to declare what type of structure you fall into. Is your company an S-Corporation, C-Corporation, or is it a sole proprietorship? Each structure comes with a different tax bracket.
You are only liable to file for taxes if your monthly income, on average, is $400+. Anything below this, and you’re not liable to pay taxes.
4. Common Tax Issues You Should Avoid
Sometimes, tax issues that come up along the way can be time-consuming to fix. So, you should be vigilant and avoid them beforehand. Here are a few of them that you can easily dodge with a little bit of precaution:
Filing prematurely: You should always file for taxes when you’re certain you’ve gathered all the relevant tax reporting documents. Filing early may ensure your process is completed on time.
Misnumbering your SSN: Your social security number must be accurately written to avoid an unnecessary hassle in the future.
Misspelling your name: If you are filing the tax, you should match the name on your SSN card. Including your second name and surname.
The wrong filing status: You should ensure your filing status is correct.
Sign all the forms: Any tax form or document that isn’t correctly or accurately signed will not be deemed valid, so better keep an eye out and inspect the forms carefully.
Inexperienced tax preparers: If you’re outsourcing your tax preparation to a third party, ensure they are experienced and reputed. Any mistakes or discrepancies on your tax forms will be your fault, not the tax preparers.
BottomLine – Making Money Online
So there you go. A brief look at the different sources of online income that fall into the tax category. Research the tax implications of your chosen niche before starting an online business and before you start making money online.
Additional articles you may be interested in:
Did You Know You’re Committing A Crime If You Have Unfiled Tax Returns?
5 Tax Claims Small Businesses Can Use To Reduce Their Bill
As a self-employed blogger, your taxes won't be automatically withheld from your earnings. ...
Since you're self-employed, you pay both the employee and the employer portions of your Social Security and Medicare taxes on your blogging income (known as the self-employment tax).
Most people start a blog as a hobby. But after earning an average of $2,000 per month , most bloggers will consider turning it into a full-time business. If you want to turn blogging into a career, check out my step-by-step guide on how to be a full-time blogger! Okay – so blogging can be considered as a business.
Blogging is a small business idea with the potential to make thousands of dollars per month, whether by driving product sales for your own brand, earning commission from affiliate programs, or creating a space for digital ad sales.
Unlike traditional jobs, blogging income doesn't come with tax withholdings. So, you'll need to set aside a portion regularly to cover potential tax obligations, avoiding surprises during tax season. Understanding and factoring taxes like Social Security and Medicare into your financial planning is key.
Filing a tax return as a blogger is not very different than filing as a small business owner. Blogging works on the same ideas as you are running a business. There are a few areas that digress as blogging is completely online. But overall it follows the same procedures.
Blogging is a popular way to share your thoughts, ideas, and expertise with the world. However, creating and distributing quality content does cost money. Thankfully, the IRS lets you deduct all ordinary and necessary business expenses from your income.
Overall, an LLC is not necessarily required for a blog, but if you are concerned about legal action and want to protect your business assets as well as personal accounts then consider forming an LLC (with help from a lawyer).
Although not required, it is a good idea to obtain at least some college training in writing. That way, you'll become a more confident and skilled writer. Classes in digital media, online journalism and editing, and other Web-based curricula will also be useful.
Bloggers who sell digital items like online courses or guides often earn up to $10,000 per month or more. Affiliate marketing is an additional opportunity for a blogger to supplement their income. Christine Wang from TheSkiGirl.com, for example, currently earns six figures each month from affiliate marketing.
If you can start a blog in a niche that you're obsessively passionate about, one that isn't too saturated, where you can build a decent audience, then you can make a cool $1000 per month, or more, from blogging. Especially as a freelancer!
On average, a blog can earn between $3 to $25 per 1,000 views from display ads through ad networks such as Google AdSense. However, earnings can be significantly higher for blogs with a targeted audience and effective use of affiliate marketing or sponsored content.
Affiliate marketing is one of the most common income streams for professional bloggers. This earning opportunity tasks you with promoting a third party's products — usually using a link or promo code that's unique to your blog — in exchange for commission earned on each affiliate product sold.
By creating and selling high-quality digital products, you can earn passive income through your writing and provide valuable content to your audience. This can be a great way to turn your blog into a profitable and sustainable online business.
As an online content creator such as a blogger or social media influencer, you may be considered an independent contractor. Per the IRS, if you are an independent contractor, then you are self-employed. As an independent contractor, your income will be reported on a 1099 rather than a W-2.
As a travel blogger, your meals and travels can be considered a deductible as long as it's related to your blog. You can also deduct expenses to and from an industry event if you're being sponsored by an agency or brand.
So, can you write off clothes as an influencer? Undoubtedly, you can – but you'll need the proof to get the pudding. In other words, clothing expenses as a business expense for influencers need evidence as an essential purchase.
These creators may owe taxes on a lot of it. "The taxable threshold for gifts is $100, so if you receive a gift that exceeds that amount, then you should consider it taxable income," says Jaya Johnson, MSA, CPA and founder of CPbAe Accounting & Taxes.
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