Last year, I accidentally became a small business owner. I just found that out this week.
I have a Google AdSense account that brings in a little money. I used to have ads on finnie.org, but removed them after finding out how much money they earned. That is to say, nothing. I also have a single ad on finnix.org, but that doesn’t bring in much either. By far, the most ad revenue comes from The American Society for Velociraptor Attack Prevention, a semi-official parody site of the running raptor jokes on Xkcd. It was originally one of my one-year single-use parody sites (a .info domain was registered mainly because my registrar was having a $2 sale on them at the time), but Randall Munroe convinced me to keep the site around. Later ads were added.
In the last few years, the Google checks added up to $200 per year or so. I’d lump it in with employment and interest income and pay taxes on it like normal (using a 1040EZ). But this year, I completely forgot about the Google income when filing taxes, which were done late last month. I received my $9 refund (no, seriously), and moved on. But this week, I received a 1099-MISC form from Google. Last year, I made nearly $800 from ads. Whoah.
While searching for info on how to file an amended return, the other shoe dropped. If you make more than $600 per year from sources such as Google AdSense, the IRS considers you to be a small, self-employed business (and Google DOES report your income to the IRS, so simply ignoring this wouldn’t have worked). That means paying taxes on the income (which I was doing anyway), filling out business net profit forms (Schedule C), and paying self-employment taxes (Schedule SE). It also means you have to fill out a full 1040; a 1040EZ will not do. Add to this the fact that, since I already submitted my return, I’d have to do an amended return.
I considered finding a tax specialist to figure this out for me, but after spending an evening reading through docs on the IRS site (don’t I know how to spend a night), it’s actually not that hard. Once you get through the accountant-ese, it’s rather simple. First, I basically have to start over, and fill out a 1040 as if it were a normal return. Since I am now a small business owner (apparently), I would need to fill out Schedule C-EZ, which lists my business’s revenues and expenses (more on that later), and figures my business’s net profit. Also needed is Short Schedule SE, which figures the self-employment tax to pay based on my net profit. Schedule M is the worksheet for the $400 Making Work Pay stimulus, pretty simple. Once those are done, it’s just a matter of filling out a Form 1040X, which compares your original return to your amended return.
Now, the nice part about this newly-found self-employment is that the IRS taxes you on net profit, not revenue. What that means is I can individually deduct operating costs related to the revenue. In this case, I deducted hosting costs directly related to the site, as well as the yearly domain renewal cost. In all, my net profit was about $500. And the best part is this is considered separate from personal deductions, so I could continue to take a standard deduction on the personal side, while itemizing those hosting/domain costs on the business side.
When all the number crunching was done, my amended return resulted in a $193 debt to the IRS. My original return resulted in a $9 refund, so the difference means I’ll be sending a check for $202. I don’t have the exact numbers of how much I would have owed if I simply included that $800 income as employment income, but it actually turns out I paid less on taxes by accidentally becoming a business owner, due to the deductions.
If I have to be a business owner, I may as well get business cards, right? How does Velociraptor Aerospace Dynamics sound?