Bookkeeping for Bloggers – Contests, Lotteries and Sweepstakes

CONTESTS

Hosting a giveaway (technically not a legal term, but it’s used interchangeably with the term sweepstakes) is not only a great way to promote your blog or a product, but also it’s a great way to build followers and build great relationships with sponsors. As a host it’s your responsibility to make sure your sweepstake is legally set up. You definitely want to avoid turning your sweepstake into a lottery. The laws governing the sponsorship and hosting of social media promotions are widely overlooked or misunderstood. Below is a brief overview of the laws and tax implications you need to know to avoid placing your business at legal risk.

Generally speaking, there are three types of online promotions:

  1. Lotteries
  2. Sweepstakes
  3. Contests

Beginning with lotteries which are random drawings for prizes wherein participants have to pay to play. Let’s look at the three components of a lottery: 

 1.) Prize, what you are giving away
2.) Chance, the element of luck involved in winning the prize, and
3.) Consideration, something of value.

For example from a bloggers standpoint, if you require someone to follow you or like your blog or page (consideration) for the probability (chance) to win a tablet (prize) that would place your giveaway into the lottery category which is so much more highly regulated (with the exception of state‐run lotteries and authorized raffles). You also cannot charge a fee or make someone purchase something for someone to enter your promotion or it will be considered a “lottery.” You must make certain that your giveaway does not contain all three of these components. Of course hosting a giveaway you will be expected to have a prize and a chance, so you need to avoid having those who enter exchange consideration for the chance to win. So before considering having a “giveaway” you may want to consult with a legal consultant or check with your state to ensure compliance with their laws as well as with federal agencies.

The majority of bloggers usually run what you would call sweepstakes, meaning they give prizes away by choosing the winner by random drawings or chosen predominately by chance. Then you have contests, which is a promotion in which entrants win a prize based on merit or skills and prizes are awarded based on a judging panel or a voting process (for example, the best poem or the winner of a trivia game). No matter which option you choose whether it’s a Sweepstake or a Contest you must have official rules. Two of the most used statements in the rules are “no purchase necessary” and “void where prohibited by law.” Check out this link via SBA.gov: How to Use Contests, Sweepstakes, and Giveaways as Marketing Tools – While Staying Within the Law. Now as you know I am an EA and not an attorney so the information contained herein is not intended to constitute legal advice or a legal opinion as to any particular matter and I urge you to consult with an attorney concerning your own situation and any specific questions you may have. The contents are intended for general information purposes only from my own experience dealing with clients, by preparing the correct tax forms to send to the recipients of the winnings/prizes and assisting the business in filing their own forms to the correct agencies.

Knowing which social media promotion you are running or hosting, whether it be contests, sweepstakes, raffles, drawings, giveaways, or freebies will have tax implications.

Sponsors of lotteries, sweepstakes, drawings and raffles that are considered gambling must send the recipient a W-2G if the recipient’s cash winnings and/or the Fair Market Value (FMV) of prizes such as cars and trips are $600 or more and at least 300 times the amount of the wager. Also, you must withhold at a 25% rate if the winnings minus the wager are more than $5,000 of gambling winnings for federal income tax.

Sponsors of contests and sweepstakes are required to send the recipient a 1099-Misc if the recipient’s cash winnings and/or the Fair Market Value of merchandise won are $600 or more and do not involve a wager. 

Eligibility might be further limited to particular states within the United States that have relatively more rigorous legal requirements, which includes:

  1. Florida – sponsors of promotions in which the total value of the prize exceeds $5,000 must file a copy of the rules and a list of all prizes at least seven days before the promotion begins and submit proof of either a trust account or surety bond equivalent to the sum of the prizes offered. Promotions based in other states must be filed if they are open to Florida residents and have prizes valued at more than $5,000.
  2. New York – the filing requirement are an issue when the total value of the prize exceeds $5,000. If that is the case the sponsor must file with the Secretary of State at least 30 days prior to the start of the promotion along with a statement setting forth the official rules and regulations and create a trust account, certificate of deposit or surety bond in the amount of the offered prize.
  3. Rhode Island – the filing requirements begin when the promotion is offered at a retail establishment and the value of the prize exceeds $500. Rhode Island does not require the posting of a bond.

There may be filing fees associated with submitting the required information to these states along with other professional fees needed in the assistance of completing these tasks (lawyers, brokers, etc.) – these fees are considered business expenses, so they can be deductible on your tax return.

In addition to structuring sweepstakes and contests to comply with federal and state laws, companies must pay attention to the promotion terms and conditions of social media networking sites. Check out their promotion guideline agreements.

 

LinkedIn

Google+

Twitter

Facebook

I hope the information that I’ve shared was helpful.   Again, the information contained herein is not intended to constitute legal advice or a legal opinion as to any particular matter and I urge you to consult with an attorney or your state/federal regulators concerning your own situation and any specific questions you may have.

 

Debbie Thomas, EA, NRB

 

I’m Blogging and I’m Making Money Doing It….What Do I Do Now?

Bookkeeping for Bloggers

I‘m Blogging and I’m Making Money Doing It….What Do I Do Now?

As an EA and a certified bookkeeper I get asked questions like, “what do I do now that I am making money from blogging?” Or, “what information should I keep for filing my taxes?” I had no idea that people were making a living from blogging. These online diaries known as weblogs or ‘blogs’ have morphed into a cutting-edge phenomenon that has provided a platform for the internet’s next wave of innovation and moneymaking opportunities. For those of you who are thinking about getting into blogging and are wondering some of the ways bloggers are making money from this well here are some of the ways they’re doing it. They are putting advertisements on their blog like Google AdSense which is an easy non-technical way of generating income. All you need to do with AdSense is copy a code and paste it on your website. Another way is to be in an affiliate program which allows you to post a link to the company’s product on your blog and if someone clicks through your blog to their site and orders, you would get a portion of the sale. Also, you can make money from private sponsorships and when your blog becomes really established with readers you can expand by offering memberships to your website to gain access to exclusive content on your blog. There are a lot more ways to generate money by having a blog but those mentioned are the most popular. However I’m not here to tell you how to make money I’m here to explain what to do when your blog starts to generate money and to give you some resources to help you navigate through the process.

business or hobby

Well as I stated earlier you can make pretty good money blogging. As you start making money your blog becomes your business and the way it works is this: For tax purposes, a business is any activity in which you regularly engage primarily to earn a profit. You don’t have to show a profit every year to qualify as a business. As long as your primary purpose is to make money, your blog should qualify as a business (even if you show a loss some years). Your blogging business can be full time or part time, as long as you work at it regularly and continuously. However, if your primary purpose is something other than making a profit—for example, to communicate with your friends or make your opinion known—the IRS will find that your blog is a hobby rather than a business.

Keeping good books and other records and carrying on in a professional manner can constitute that you are running your blog as a business. Working on a regular basis and earning a substantial profit, even after you’ve had some losses in the past will help show that you are serious about trying to make it a success. As a business, you now have to claim all income; even the free stuff you get, unless it’s labeled as a gift or corporate sample, is considered income. If your blog qualifies as a business, you’ll be able to deduct your business expenses from the income you earn from the blog. If you have a loss, you’ll be able to use it to reduce your taxable income from other sources such as wage income and investment income. It’s also worth noting that your expenses shouldn’t really outweigh your income (although sometimes it’s unavoidable in your first years of business, taking into account start-up costs and so forth). Keeping receipts, a separate bank account and all other documentation is a great start for getting your business organized for tax time. It also shows that you are running your blog as a legitimate business. Once you’ve established that you are running a business, it is now time for you to set up an entity structure (LLC, S-Corp, C-Corp).  I do not recommend that you be set up as a Sole Proprietorship.  I do encourage you to speak to your tax professional about the tax implication of each entity and what will work for you.  Check out this link for more information on whether you’re considered a business or a hobby.

deductions3

So then what things can a blogger deduct? Just about anything that is directly related to your blogging business and is necessary and reasonable in amount. Below are some categories and expenses a blogger could deduct.
Internet fees
Website hosting fees
Domain name cost(s) and renewals
Business Travel

Transportation costs: car mileage; airline tickets; taxis; buses; trains
Hotel costs for business trips
Costs of conferences, plus all related expenses
Continuing Education
Further education classes
Webinars
Business podcasts
Meals
Meals are only deductible as an entertainment expense when provided to a customer or client. In general, only 50% of the cost of the business meal can be deducted; other rules limit “lavish or extravagant” meal and other expense deductions
Depreciation
Fax/scanner/copier equipment
Computer equipment/Laptop
Furniture
Supplies
DVDs and CDs related to your blogging
Movie or theater tickets, etc., if related to your blogging
Stock photo purchases for your blog
Film, Web & Digital cameras
Props
Dues & Subscriptions
Books and magazines used for research
Research sites that require a subscription
Memberships to professional clubs and affiliations
Advertising
Business logos and graphic design fees
Business cards, letterhead and other stationery
Online self-promotion fees (that includes banners and AdWords costs)
Legal and Professional Services
Search Engine Optimization services and fees
Website design and/or maintenance fees
Tax preparation/Bookkeeping fees
Business incorporation costs
Costs for Trademarks or Copyrights
Home Office Deduction
You can deduct the part of your home you use exclusively for blogging as an expense, including a portion of the rent, water, heating bills, insurance and so on.
Office Expenses
Business equipment rental
Tax and accounting software
Postage costs
PayPal and Bank fees
Post Office Box fees
Prizes and giveaways
For more information on deducting business expenses check out this link.

keeping track3So now you know what you have to do, here are a few options you have for keeping track of your income and expenses.

First, hire a bookkeeper. Of course I would tell you to do this because I’m a bookkeeper (wink). Some may think it’s too expensive which is understandable if you’re not really making a substantial amount of revenue, but for those making a living at this may want to consider it because in the long run you could save a lot of time and money when it comes tax time. It is definitely the easiest way to go because you can just drop off a box of receipts to a bookkeeper and pay them to organize, align and produce a package that will help you file your taxes or even pay them to do your taxes if they are also licensed tax professionals.  A bookkeeper will have complete and up to date records of all your business interactions, produce professional reports and ensure your books are accurate. If you don’t have the funds at this time to hire a bookkeeper there are other ways to keep track of your activities: For example you can use Microsoft Excel to keep track of your business income and expenses.  It’s much easier to keep track of every activity if you have a separate bank account for your blogging business.  Another way would be to use an online accounting program; I’d recommend using Wave Accounting or FreshBooks.  These online programs usually have bookkeepers or accountants, as their advisors. These folks can help you if you get stuck or have questions or just want advice and it’s FREE.  FreshBooks have limitations but you can upgrade if need be. When you decide you’re ready to purchase software you can always contact a QuickBooks ProAdvisor and they can help you choose the correct QuickBooks package and give you special discounts. Most of the QuickBooks ProAdvisors can be contacted via email or phone to help answer any questions you may have with your QuickBooks. Click this link to find a QuickBooks ProAdvisor

This quick introduction definitely does not compare to meeting with or speaking to a certified bookkeeper, accountant or enrolled agent (EA). It is only meant as a quick guide to get you started with keeping track of your business activities. If you are able to meet with a bookkeeper, I highly encourage you to do so; they can be great resources to have.

If you have any questions please email me and I’ll be glad to answer any of your questions.

Debbie Thomas, EA, NRB