Internet Marketing Tax Deductions
December 31st, 2009 | 46 comments
It’s the last day of 2009, which means tax season is just around the corner. That is a good thing for some and a bad thing for others. Whether it’s good or bad for you, one thing’s for sure, you NEED to be sure you claim all of your yearly business expenses!!
(NOTE: I am not a certified financial adviser of any kind! Always consult with a CPA or some sort of finance professional before putting any advice I provide into action.)
Hopefully you kept track of your incoming and outgoing for the entire year. I know I DIDN’T my first year online and because of that the following tax season was a total nightmare! I learned from that and recorded every single incoming and outgoing transaction from that year on and started paying taxes quarterly and now tax season is a breeze!
Here is a list of the tax deductions that I claim for my online business:
Computer – Duh 
If you bought a computer in 2009 you better claim it as a business expense! The same goes for extra monitors, computer desk(s,) chair(s,) printers etc.
Internet fees – I work at home, so the Internet usage is shared between business and home. I figure I use it 80% of the time for business, so I add up what I paid the entire year for Internet, take away 20% (personal use) and what’s left I claim as a business expense.
Ebooks, scripts, software – Yep, ebooks are education and scripts, software etc. are necessary and legitimate business expenses.
Hosting & Domain Registration – With most Internet Marketing business models, you can’t even run your business without a domain and hosting. Once again, very legitimate and you should definitely be claiming it as a business expense!
Seminars – I’m not much of a seminar goer, so this isn’t one I’ll be claiming, but if you went to any Internet Marketing seminars, they are absolutely tax deductible!
Video cameras and other devices – If you did any video in 2009 and needed a video camera, webcam, digital camera etc. that’s also a business expense that should be claimed.
Outsourcing – This SHOULD be one of your biggest expenses! Outsourcing is a powerful business accelerator, so you should be outsourcing. No matter what it is you’re outsourcing (writing, coding, general work) if it relates to your business it’s a tax deduction.
Business Use of Home – This is a BIG one and one that I missed initially (thanks Kris.) As Kris mentions below in the comment field, there’s a formula used and your tax professional should do it, as mine does for me, but it’s a big deduction!
Advertising – Another big one I forgot initially (thanks Brenda.) Any and all advertising that you paid for including PPC, 125’s purchased on blogs etc… it’s all deductible!
That’s all I can come up with off the top of my head, but I’m sure there are more. Basically, anything that you spent money on, which was used in your business during the year should be deducted!
DON’T be afraid to claim something! If you don’t claim it, that’s money that you’re just throwing away… just giving to the government.
img credit: brianjmatis
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31st December, 2009 at 4:21 pm
First of all, I’m grateful that I HAVE to claim my IM income because that means I actually made over $600
Second of all, your eBooks are some of my favorite deductions!
Happy New Year!
31st December, 2009 at 4:31 pm
This is excellent and great timing. Thank you Josh. I was just thinking about this the other day and dreading it. You have made this easier to deal with by giving me some “positives” for the tax season.
31st December, 2009 at 4:31 pm
another expense I claim on mine is my cell phone costs. Obviously I don’t use it 100% for business, but I’ve claimed it in the past and my accountant said it was ok.
31st December, 2009 at 4:35 pm
Josh, thanks for the reminder.
I also deduct the cost of your coaching subscription, ads, MyWaylinks, and home office (you can deduct mortage/rent, property taxes, utilities, etc using a complicated formula similar to your Internet fee example – as you suggest best to consult with a tax pro on this one).
Happy new year!
Kris
31st December, 2009 at 4:37 pm
Thanks Josh,
What I dig about you is that you’re REAL! Tax normally confuses the heck out of me, but this makes it that much easier. Hope 2010 is a cracker for you!
31st December, 2009 at 4:38 pm
You forgot to mention the space you use for business. If for example you use an office in your home you can deduct what you pay for that space. So for example you have a bedroom in your house you use strictly as an office, that bedroom comprises of 25% of your house you can deduct 25% of your monthly mortgage/rent as an office expense.
Also phone that’s another one, mileage to meetings or business related driving, car expenses for a car that is used for business, and there are a billion other deductions I just can’t think of any others right now that you haven’t mentioned.
31st December, 2009 at 4:38 pm
Hey Josh,
Been thinking about that recently. Haven’t made any money yet, but have spent a bunch.
Here’s a question for you (I know you’re not a lawyer) – Do you have to be a company or incorporated, LLC, etc… to claim expenses?
HAPPY NEW YEAR!!!
31st December, 2009 at 4:39 pm
adding to the list I deduct mileage to the bank. Love dropping off those checks and yes I do know that you can get auto deductions but it’s fun to watch the faces of the clerks in the bank. Heck, I deduct mileage whenever we do purchase anything related to the business.
31st December, 2009 at 4:46 pm
Yeah, that’s definitely another one I do, the office space in your house. That can come to over 1,000 depending on the size of your room in your house. Plus, the percentage of your untilities for that room as well. A good chunk of change to write down those profits
31st December, 2009 at 4:51 pm
@ Kris – Thanks for the reminder. That’s one of the big ones! I added it and gave you credit for the reminder
@ Parka – Glad to help. Obviously there is alot more to it, but this is all I worry about. I leave the rest to my finance guy.
@ Marc – You don’t have to have an LLC or Corporation. You can operate as a sole proprietor. You just do it under your name. Talk to your tax guy about it. Happy New Year to you too!
31st December, 2009 at 4:53 pm
Great post Josh and one all entrepreneurs should be aware of come tax time.
Here’s a couple of more deductions: office supplies such as paper, pens, notebooks etc. and any advertising costs. Not just Adwords but also if you post ads on other people’s websites or you place an ad in the newspaper for an assistant.
All these things add up and are a good reason to be self-employed.
Brenda
31st December, 2009 at 5:01 pm
@ Brenda – How could I forget advertising? lol I added it to the post as well with credit to you for the reminder.
31st December, 2009 at 5:22 pm
Travel could be deductible in some situations. If you are writing a blog about Germany and you take a trip to Germany to take pictures, experience the tourist attractions you’ll be writing about, and gathering information for your blog, a portion of that trip could be deductible.
If you are selling physical products and you travel to China, Bahamas, or Las Vegas to lookfor other sources of product or a convention, that trip could be deductible.
Business meals – If you are having a business lunch with your business partner, (spouse), to discuss business 1 – 2 times per week, those meals are deductible.
Business Miles – You can deduct 55 cents per mile for trips to the post office, office supply store, airport, or any other place you drive that has a business purpose behind it.
31st December, 2009 at 5:44 pm
Useful article and good comments. This will be my first year claiming internet business. My CPA gave me some things to think about. If IRS were to audit they will want to see a business plan. He said that it does not have to be elaborate, one page or so, but it lends legitimacy to the business venture. As far as deducting for the space you use for your business in your home you want to be able to demonstrate that the space was used exclusively for the business; nothing else. Also, you want to have something on line that is capable of producing income. In other words you can’t just be learning. You must be able to demonstrate that you have an actual business operating.
Hope this is informative.
Later,
Carlton
31st December, 2009 at 6:05 pm
Other potential deductions are health insurance premiums, software, tax prep fees and services such as auto responders.
Unless your business operates at a tax loss for several years you shouldn’t need a business plan.
Deducting your home office is one of the hardest deductions to prove in an audit and when you sell your home you must recognize the depreciation you have taken as a gain.
31st December, 2009 at 6:18 pm
Thanks for this timely post. This will be the first year I get to claim IM income! It didn’t occur to me to deduct my Internet fees – duh! This is a good list. I think I will consult a tax person for the first time this year to make sure I go about it properly.
31st December, 2009 at 6:41 pm
Josh, This is some good information and at just the right time. I too, did not keep records the first year and it caused me a lot of extra work. I learned fast and now keep up with all my expenses.
I have everything covered on your list, but I am sure it will be a great help to a lot of new Internet Marketers.
Where was you when I got started?
I hope you have a Happy and Prosperous New Year!
31st December, 2009 at 7:33 pm
Great list, Josh!
And I agree with you wholeheartedly about not being afraid to claim a deduction for anything you paid for that’s related to your business. But I’ll add to that that you want to also be sure that you have records to document it!
As you mentioned about how you decide how much of your Internet fees you are claiming, the IRS wants you to be documenting where you came up with that percentage, such as with a usage log! If audited, they won’t let you get away with the guesstimate. They want proof!
And as far as the formula for the home office deduction, as was already stated, yes, it has to be space used exclusively for your business (and it doesn’t have to be a separate room, just dedicated space).
The formula isn’t really all that complicated. It’s just basically the percentage of your entire living space that’s used for your office. That’s the percentage you take of your entire household expenses from which the office also benefits (such as mortgage interest, rent, utilities, etc.). So basically, you just need to measure your living space and also your office space and give that to your tax preparer, along with all your other tax stuff.
And yes, it is worth the hassle because it is a big deduction (and helps to reduce your self-employment tax, which is the whacker).
Happy tax season!
31st December, 2009 at 7:44 pm
Here’s another great one to add to your list. Use drop cards… business card size advertisements. Whenever you drive ANYWHERE, leave them there. This is an advertising action. You will need to document everyday, but it means you can deduct all your car mileage.
What goes on the card? Ours says: “Do you have a dog? Discover how to turn his regular dog food into a SUPER dog food. Go to UltimateHealthForDogs.com or call toll-free xxx-xxx-xxxx.” Use a very bright card color.
While we are using this for our own product, this has been used in the network marketing industry for years to great success. It is a simple offline technique to drive traffic to your online business. But more importantly, you now have a way to deduct all your mileage. This could be your biggest tax deduction for all you work-at-home people like myself.
Most of the people reading Josh’s blog in are into internet marketing, so why not use something like: “If you have a computer with an internet connection and you’re not making money, you are actually losing money every day. To learn more, just call our toll-free recorded message xxx-xxx-xxxx or visit our website (whatever).com.
Hope this helps some of you. And Josh, thanks for all you have contributed this year. It is greatly appreciated. Have a great New Year’s!
31st December, 2009 at 7:53 pm
I realize you aren’t a CPA but I am curious if you have any thoughts as to whether any of these scenarios would constitute a legitimate business expense:
1) Buying things to do a product review, so for example if I buy a Kindle and do a product review on it can I expense the Kindle? I am not using the Kindle for business purposes on a day to day basis, but I plan to make money on my post by including Amazon links.
2) If I do a restaurant review post can I claim the cost of that meal as a business expense? What if my wife and I both do a review that we post, can we each write off the meal as an expense. Is this legitimate “research”?
Just curious what you or your readers think.
31st December, 2009 at 7:57 pm
Taxes? What are those????
31st December, 2009 at 8:41 pm
Good reminder at the end of the year Josh. Thanks for it.
I’, sure these are the most outstanding ones you’ve come across. There could be some other ones depending on individuals’ specific situations like virtual offices, meeting arrangements, etc to get businesses offline.
The list can go on and on. Of course, I hope it’s as small as possible for all of you in 2010. By the way:
HAPPY NEW YEAR!
31st December, 2009 at 8:46 pm
@John – Here is a great list that may help.
http://www.unclefed.com/AuthorsRow/GretaHicks/t&e.html
I don’t think writing a restaurant review is even required. As long as you are discussing business, I would count the meal as a deduction.
Good luck with that Kindle. Technically, you can write off anything you want to. The more important question is would it stand up in an audit?
My guess would be no. Sure, you may need a Kindle in order to write a review, but after you are done, what is to keep you from selling it and recouping a portion of your money back? If you did that, I would think the difference in price that you paid for it versus what you sold it for would be deductible, but I don’t think you can make those type of purchases to write reviews and just keep the product expecting it to be 100% deductible.
31st December, 2009 at 8:48 pm
I did not read all the comments, so someone may have gotten this already, but mileage is a huge one.
I keep my miles when I run to the store to buy printer ink, for example. And because I run a beer review site, my accountant lets me write off some of that too, ROFL. Talk about blogging about your passions?!?? what a payoff eh?
Great list man, have a super good new year and be safe,
AL
31st December, 2009 at 8:55 pm
Just a quick note, but some additional expenses – charitable contributions or donations given by the business, business gifts (be reasonable here), business meals (only a percentage of those count – depends on the purpose), travel to and from business meetings or trainings, cost of lodging and transportation (including parking, tolls, etc.) if travel was for business (even if only a portion – you can take the percentage), professional dues and fees, subscriptions to trade magazines, taxes (sales or use taxes), legal fees needed to be in business, any outside service-even if it’s not an “outsourced” activity-that is necessary for the performance of your business, affiliate fees to pay to others, postage and shipping, all long distance calls that are related to the business, any utilities that are related to the business (such as a second phone line for fax or internet, an 800 #, etc.), salary and employment expenses (a wonderful deduction if you employ your family), etc. There are more, but that’s off the top of my head.
oh – regarding the Kindle…after your review, use it to download, store and read the business books and ebooks that relate to your business. Take it along when you travel on business and use it for that. This gives you a legitimate use for the Kindle. Remember you must be able to substantiate the percentage of time you are claiming as business use.
Oh yes, Post Office Box and/or safe deposit box are considered rentals if you use for your business. Like I said, there are more…
31st December, 2009 at 9:28 pm
These are all great suggestions. As always probably the ultimate source of anything, aside from the IRS, is google. Here’s a search for
IRS Internet Marketing Tax Deductions
http://www.google.ca/#hl=en&source=hp&q=IRS+Internet+Marketing+Tax+Deductions&btnG=Google+Search&meta=&aq=f&oq=IRS+Internet+Marketing+Tax+Deductions&fp=fdb7627fc4f0229c
31st December, 2009 at 10:15 pm
Were you aware that if you do not endorse Federal Reserve Notes that you are not liable for any income tax? The income tax in the United States is predicated on borrowed so-called “money” from a private investment banking syndication known as the Federal Reserve System. Yes. You heard right. The infamous Federal Reserve is a private corporation, disguising itself as a quasi-governmental agency.
It is a little known fact, but true. The government has to give you a remedy for their shenanigans (i.e. the Federal Reserve Act, which is actually unconstitutional. But that’s another story altogether.) Therefore, if you demand only United States Notes (as per Title 12 Sec. 411 of the United States Code) in payment from any bank in the Federal Reserve system, you are not endorsing Federal Reserve Notes, and therefore not contributing to the U.S. debt.
I haven’t filed or paid an income tax since 1981, and that’s no lie. And the only time the IRS came after me, they gave up after a few years because they had no standing or jurisdiction in the matter. Aside from that, I was too small a fish for them to bother with.
31st December, 2009 at 10:34 pm
[...] season. Internet Marketer Josh Spaulding has a great post on tax deductions. Check it out ==> Internet Marketing Tax Deductions Share and [...]
31st December, 2009 at 11:30 pm
Josh, these were all great reminders. As a self employed marketer for years, I have used most all of them, but it was great to get some new ideas. Mileage has always been my best one, and I am constantly looking for customers or affiliates in all my travels. I also always carry some sort of business literature in my vehicle, so I often have the opportunity to hand them out. I like the idea of the drop cards – I have used them in the past with some success, but I am going to try them again. Thanks and may 2010 be the best for all of us!
31st December, 2009 at 11:33 pm
One more thing… tomorrow, go out to your car(s) and record the Jan 1st odometer reading. This is a very important beginning of the year thing to do.
31st December, 2009 at 11:45 pm
Hey Josh, it’s worth checking with your accountant re. claiming part of your house space.
A few years back i brought this up with my guy and he was lukewarm. Something to do with tax calculations when you come to sell the property.
‘best
Rob Clancy
(speaking from an Australian point of view)
Josh, just had a thought before i go -
a trap i’ve fallen into many times is spending time recording, calculating, rifling through records, filing – all over a one dollar expense.
Considering that you never get the complete dollar back from the tax man anyway, generally just a small % it’s just not worth its time.
Maybe it’s the 80/20 rule at work again !
‘best
Rob Clancy
1st January, 2010 at 2:40 am
You mean I can actually deduct hosting, domain names, ebooks, (mostly yours) so that I can possibly get a refund this year? This is excellent news….
Thanks again Josh.
Paul
1st January, 2010 at 4:55 am
Fantastic advice! I’ve been in business for over 4 years and there were a lot of things at the beginning that I didn’t realise I could claim for! There are some perks to being in business and these are some of them
:)
1st January, 2010 at 10:17 pm
Many excellent comments here. I have filed Sub S returns and business/rental property schedules for brick & morter companies as well net based businesses for many years. Two things come to mind … always use an experienced accountant if you are filing any type of business return/deduction … it is well worth the money … secondly, I learned a long time ago that … Hogs Get Slaughtered … don’t get greedy with your deductions as your return will just not make sense to the IRS computers … a regular return filed by someone with only a j.o.b. has about a 2-3 per cent chance of audit, depending on geographical location … a “home based business” related return probably would be audited at a 7-9 percent rate, depending on geographical location and income/loss claimed … so be careful and have reasonably based documentation for what you claim. OH, Thomas@registrycleanerreviews … what you say is just not true … it has gone to the Supreme Court ..the prisons hold a lot of folks who have said exactly what you are saying … when it finally catches up to you it means a long stretch where the sun doesn’t shine.
2nd January, 2010 at 7:48 am
Josh
May 2010 be a prosperous and healthy year for you and all of your subscribers.
Thx for the info – in SA you can also claim “entertaining expenses” like if you took a business associate out for lunch etc. You can also claim medical expenses and/or if your equipment (PC etc) depriciated in value.
2nd January, 2010 at 10:01 am
Great advice. Perhaps marketing costs must be “ordinary and necessary” business expenses in order to be deductible.
3rd January, 2010 at 4:58 am
I’m just afraid if I claim all my expenses for 2009, my wife will see how much money I’ve spent/blown and ask me how much I’ve made, which isn’t much, although I truly believe this is my year.
Good luck to everyone in 2010.
Robert
3rd January, 2010 at 9:34 am
Very helpful there were some things I didn’t know that I can deduct. My favorite is
Business Use of Home.I need to research this one a little more sounds pretty good.
Nice Post.
4th January, 2010 at 12:30 pm
Also, don’t forget you can claim the costs of any professional expenses, such as financial, legal, business, etc.
5th January, 2010 at 6:01 am
This is a very revealing post and I must say I would save more tax this year.
Thanks Josh.
6th January, 2010 at 7:36 am
Thank you Josh, you saved me from doing this research which I was planning on!!!!!!!
6th January, 2010 at 9:20 am
Hi Josh, thanks for a good post.I need to be more careful this year to claim all expenses.Last year I missed out on a few I did not even know existed.
7th January, 2010 at 2:51 am
Great stuff! Do I have to claim money that I’ve made from multiple sites? Is there a number that I have to make to have to claim? I’ve made over $600 on mechanical turk, do I have to claim this? Can I say I had a home business and then claim my phone and stuff? Please let me know!
15th January, 2010 at 8:03 am
[...] Internet Marketing Tax Deductions by Josh Spaulding [...]
23rd January, 2010 at 4:29 am
I’m trying to get all my records my taxes together now and I am glad that I kept track of them as the year went along. I couldn’t imagine trying to go back and do it all after the year was over.
Another expense you can deduct are any Paypal fees or bank fees. I know some banks charge a small fee if you have a business account with them. Also, if you have clients or companies that pay you through Paypal you can deduct the percentage of the money that paypal takes out from your payment. So, if you have a deposit for $100 and paypal took out $4, you would claim the full $100 as income and then the $4 would be deducted as fees.
16th February, 2010 at 4:31 pm
So true, one of the hidden benefits of running a home business is the great tax deductions.
Think of it just like another small business and you’ll be right on track.