Hey, Online Entrepreneurs in the United States: Or am I talking to just another bunch of Internet Hobbyists? If your answer is, "Huh?", then read and learn.
The IRS is eagle-eyeing internet transactions sharper than ever.
You'll want to be prepared.
Whether it's eBay, affiliate marketing, flipping domain names, earning AdSense income, freelance content providing, or what have you...
if those activities constitute your gig, and you are turning a profit, you will greatly benefit from structuring your activities so they are classified as a Business, not a Hobby.
The IRS will be disappointed, but you could save thousands, come tax season.
Face it: you're probably online most of the day and night maintaining your eBay store, checking your ads, web traffic stats, affiliate sales, researching great new domain names, cranking out content, emails, Tweets, blogs...
the list goes on.
You've got your hand in a lot of different ventures, don't you.
You may even be one of those types who doesn't make time to shower or exercise.
(Speaking here from personal experience.
) Taxes are probably just a nagging concept in the back of your head, to deal with later.
Since the activities of many internet marketers seem to just melt together, we typically need someone, or something, to help us clarify what our business model is.
And, here's a big, basic hint: you don't want it to be a hobby.
Not if you've shown a profit for the past three out of five years, or even just have expenses you'd like to write off.
In general, hobbyists don't get to write off expenses in excess of income.
Businesses do.
How can you make sure your internet wheeling and dealing hobby doesn't end up putting you in the tax poorhouse? There are two big entrepreneurial sins of omission: (a) not having a business plan, and (b) not separating your business finances from your personal ones.
Chalk it up to the excitement of all that wheeling and dealing.
However, you can easily fix this by (1) writing up a business plan (free templates are easy to find online, or through the Small Business Administration) and (2) opening a small checking account online (can be done for as little as $25).
It's even recommended you reimburse your personal account from your business checking to cover all those domain name purchases, AdWords fees, and Elance writing services you paid out of your own pocket.
Making these two professional moves shows the IRS you want to be In Business.
What if you're in business, and in the red? To use the tax advantages of Schedule C business deductions, you need to be operating a real business, not just a hobby.
So you really will need that business plan, with objectives, profit projections, separate finances, and profit and loss statements.
It all sounds daunting, doesn't it? But that's what books, bookkeepers and accountants are for.
On a shoestring budget? The IRS website has a wealth of free information that spells out the rules, albeit in sometimes painful detail.
Check their helpful E-Business and E-Commerce section.
Totally free advice, and straight from the source.
Take it from someone who's been there: writing a business plan can be tedious and boring, but it will definitely focus your brain on what you're doing.
Don't plow through it alone.
Get help with it.
Doing your business plan has many positive benefits.
Knowing what you are "doing" when you do business can help you achieve real progress in your business goals later on.
Not to mention, it keeps you in a better position with the IRS should an audit occur.
They like business plans.
You are a business, right? Move out of hobby world, and get professional.