Taxes for Food Bloggers: Business or Hobby?

Please note:  the 2017 Tax Cuts & Jobs Act changed the treatment of hobby expenses.

Eater, writer, bean counter.  So say my business cards, yet I’ve never touched the topics of accounting or taxes on this here blog.  I mean, taxes…  Blegh.  Am I right?  But after attending the International Food Bloggers Conference in Seattle last week, I got to thinking.  Did these foodies know food blogger conference expenses are tax deductible?

Business or Hobby?

You dedicate all of your free time to your blog.  It’s like, a second job or something.  Right?  That’s how most serious food bloggers feel about their blogs, but the IRS may see it differently, and that could majorly impact the Federal tax due on your blog earnings.  Whomp. Whomp.

So, is your blog a business?

For purposes of this analysis, lets assume you have not set up a separate legal entity (LLC, S Corporation, etc.), and that you are running this “business” as a sole proprietorship.  This is the bucket most food bloggers fall into.

The big question at hand:  do you blog primarily for profit or pleasure?

Here’s how the IRS tests this question:

• • Do you carry on the activity in a businesslike manner?

• • Does the time and effort put into the activity indicate an intention to make a profit?
  • Do you depend on income from the activity for your livelihood?
  • If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
  • Have you changed methods of operation to improve profitability?
  • Do you have the knowledge needed to carry on the activity as a successful business?
  • Have you made a profit in similar activities in the past?
  • Does the activity make a profit in some years?

• Do you expect to make a profit in the future from the appreciation of assets used in the activity?

TAX TIP:  A general rule of thumb is that if your “business” makes a profit in three of the last five years, it’s considered to be an activity you’ve entered into for profit.

Why does this matter?

If an activity is a bonafide business, you can deduct all the expenses from the business, even if that means reporting a loss on your tax return (i.e., your expenses exceed your income).  If the activity is classified as a “hobby” you’re not able to deduct any expenses related to that hobby.  (This rule changed in 2018 due to the Tax Cuts and Jobs Act).  Ouch.

On the flipside, if an activity is a bonafide business, net income from the sole proprietorship is subject to self employment tax (2014 rate was 15.3%, 1/2 of which you can claim as a deduction for AGI).  Income from hobbies is not subject to the self-employment tax.

Let’s crunch some numbers:

Gwen is a single taxpayer.  In 2014, she made $50,000 of income from her full-time job, and appropriate taxes were withheld.

Example #1:  In 2014, Gwen’s food blog generated $5,000 of revenue and incurred $3,000 of expense, for net 2014 blog INCOME of $2,000.

Example #2:  In 2014, Gwen’s food blog generated $5,000 of revenue and incurred $6,000 of expense, for net 2014 blog LOSS of ($1,000).

Based on this analysis, if you take the standard deduction and your blog is considered a hobby, you’re in the most expensive scenario.

Next topic:  What blog expenses can I deduct?

Disclaimer:  The information contained within this blog post is provided for informational purposes only and is not intended to substitute professional tax advice.