If you’ve recently started a new career or hobby in which you spend time affiliate marketing, you may be wondering if the money you are making is taxable. And if you aren’t sure what you do and do not need to claim for taxes, this can lead to confusion and problems with the IRS.
Affiliate marketing is taxable. However, the IRS is very specific under what conditions and in what amounts. In general, the magic number for reporting affiliate marketing is when you make over $600. If you don’t make more than this then you won’t have to claim taxes at all.
Of course, if you’ve recently started affiliate marketing you certainly don’t want to get in trouble with the IRS, as this can be a costly bill for a new business.
Read on to learn more about claiming affiliate marketing taxes so that you know that you won’t run into future tax issues as well as ways in which you can lower the amount of taxes your company owes each year.
Side Note: I am not an accountant, nor am I giving you any specific advice. For advice on your situation please consult your accountant.
Is Affiliate Marketing Taxable?
In the United States, affiliate marketing is taxable just as any other source of income would be.
The only exception to this is if you make less than $600. But once you have hit this income threshold, it is imperative that you claim this money as income with the IRS.
This is considered schedule-c income and if you have questions about how this works, don’t be afraid to ask your accountant for help.
It can be easier to claim your affiliate marketing income if you take steps to log and track this income as it comes in. The best way to do so is by using a spreadsheet.
Anytime you make over $600 as a marketing affiliate, you should be issued a 1099 form.
If tax season comes around and you aren’t quite sure what to claim, you should claim everything when you are in doubt just to be on the safe side.
How To Track Your Taxable Income
As mentioned above, it is best to track your marketing affiliate income by using a spreadsheet.
There is one in this article which you can use as a reference. This will work well while your business stays small, but if your business starts to grow, you will need to look into using a different program to track your clients.
Consider investing in QuickBooks or FreshBooks, both of which work well to keep track of both your incoming money and expenses.
Hire An Accountant
Unless you have a degree in accounting, it is highly suggested that you hire an accountant. This is because tax regulations can be tricky in the United States, especially if you are filing your affiliate marketing income for the first time.
There are several different types of accountants out there, and they charge different prices depending on what package you choose.
Generally, it’s a good idea to have an accountant help you during tax season, as well as be available for questions year-round.
Chances are, having an accountant can save you more money than if you try to do without because they will know their way around the tax laws much more than you will.
3 Tips To Cut Your Affiliate Marketing Taxes
Depending on how much affiliate marketing you do, you may have quite a large tax bill when tax season comes around.
Don’t fret, as there are a few ways you can lower your marketing affiliate taxes.
1. Buy Stuff For Your Business
It may seem weird that buying things may actually save you money, but in this case, it can.
When you buy supplies for your business, these costs can be written off and save you money on taxes.
So, don’t be afraid to buy a few of the supplies you may need. Just make sure you keep your receipts to show proof of your purchases.
If you bought one of the above programs mentioned, like QuickBooks, they will often have a receipt filing system you can use.
2. Setup An LLC
Another way to save a little bit of money when tax season comes around is by setting up an LLC with a Sub S.
This will help you save money on both social security and Medicare tax. This can be a little bit tricky, so keep your accountant in the loop and let them guide you through the process.
Also note that you will need to set up a separate business account when you do this, and your personal and business finances will need to be kept separately.
3. Write Off Your Home
If you do all your affiliate marketing from home, this makes your house part of your business expenses.
And if you use one part of your home specifically for your business, this part can be written off. You can also write off utility bills such as water, sewer, heating, electric, and internet.
And if you use your phone, even your phone bill can be a deduction when it comes to tax season.
Of course, this must be done with caution to make sure it is legal, so be sure to talk to your accountant about these deductions when it comes time for tax season.
Benefits To Filing As An S Corp
When it’s time to claim your affiliate marketing taxes, your accountant may recommend that you file as an S Corp, and you may not be aware of the multiple benefits this will provide for you and your company.
You Only Get Taxed Once
Regular companies are taxes on both a corporate and a personal level.
The best way to avoid this is filing as an S corp because you will only be taxed once, even if you wanted to take some of the profits out of your company
No Self-Employment Tax
With an S corp, you will only pay taxes on your personal income, not on the profits from the company.
This can save you lots of money come tax season, especially if your company is amassing profits.
A Reasonable Salary
Under an S corp filing, you are required to pay yourself a reasonable salary and nothing more.
This means, as previously mentioned, that once you pay the taxes on this salary, you don’t have to pay any additional taxes on top of your income tax.
Now all of these benefits are great, but there is still a chance that an S corp may not be for you.
S corp rules and benefits vary based on the state your business is registered in, so make sure you investigate any local regulations before you apply.
It is also a good idea to discuss this option with your accountant before making any big tax decisions as they will be able to advise you how to properly file for your business.
How Else Can You File
If filing as an S Corp isn’t for you, or if your accountant advises against it, there are a number of other ways to file your affiliate marketing taxes.
The most popular is as a sole proprietorship, which basically means you are self-employed. But there are also other ways to file which your accountant may recommend depending on the state in which you live.
Some of the other options are C corp, partnerships, and LLCs. Once again, it is best to discuss all of these options and which is best for you with your accountant before making any big tax moves.
What Happens If You Don’t File Taxes?
All of this sounds very complicated, which may lead to some people deciding that it’s simply better not to file taxes.
But this should never be the case. When you choose not to file taxes, this doesn’t mean you don’t still owe taxes.
In fact, the IRS can come after you based on the amount of money, they think you earned.
And they’ll also add a fine on top, meaning you’ll end up owing the government more money than if you had just filed your taxes responsibly in the first place.
And not only that, but tax evasion is a crime, and if your taxes continue to be unpaid, this could result in jail time.
Although you may be excited as you embark on your career as an affiliate marketer, it’s important to remember that you need to pay the US government its cut.
Generally, in the United States, anyone who makes more than $600 of income from any activity must claim this income. As an affiliate marketer, there are a number of different ways you can do this.
But the best way to start is by hiring an accountant, keeping spreadsheets of all your incoming and outgoing money, and by keeping receipts for any business purchases.
Once you have all of this gathered, your accountant can help further advise you on the best way to file to ensure you get to keep the bulk of your money while also abiding with local and federal tax laws.