What qualifies as a Tax Deduction for my website?
You can lower your taxable income by claiming deductions. Deductions are items or services you purchased to help run or create your site. Tax deductions can be a confusing topic, there are some obvious deductions, and there are some questionable deductions. To be on the safe side and to avoid a pesky audit, you should contact a tax professional to discuss deduction qualifications. We also recommend using an online tax program to file your taxes, these programs are very simple, they do all the work for you. The free programs do not include the Schedule C and Schedule SE forms, which are needed to file taxes for the self-employed. We have done a little research and the best place, with the lowest prices, to file self-employment taxes is at TurboTax.com, they also include free audit support. Be sure to keep proper documentation for each deduction you are taking receipts, invoices, and bank statements. If you are ever audited by the IRS you will need to provide proof of the cost of these deductions. The following items are prime examples of items that are without a doubt deductible:
- Hosting Fees
- Domain Name Cost
- Advertising Costs
On the other hand some deductions may throw up a red flag. Let's say you want to deduct your internet cable/DSL costs. You pay $300 for 365 days of internet service, how much of that time are you actually using the internet connection solely for your website, and how much are you using it for personal reasons. These are questions you will be asked when audited, so if you are going to take this deduction be prepared to have an answer ready. The same scenario applies for the home office or physical equipment deduction, if you are going to take the full deduction be sure that to research whether they qualify for a complete deduction. The following items are deductions that fall into this category:
- Computers and Computer Equipment
- Computer Software
- Digital Cameras
- Fax Machines
- Office Supplies
- Home Office(Rent/Mortgage Payment)
- Phone Bill
- Cable/DSL Bill
- Mileage for Business
How do tax deductions work?
A tax deduction offsets the tax that you would owe on your gross earnings. If your gross Adsense earnings for the year were $1,000 and you did not claim any deductions, you would owe upwards of $400 in taxes. But if you put $500 into your website for Hosting, Advertising, ect.. and claimed those as deductions you would only owe about $200 in taxes. The amounts vary based on your tax bracket.