Revenue vs profits vs total cost per outsourced blog post and the tax implications

[AhFreshMeat]

Never hear anyone speak about this:

if you are in the US, and your taxable income (revenue) is your profits from ads/affiliate income subtracted by expenses from purchasing content... then you’re theoretically getting about 25% off purchased content if your site makes under 100k or so that year.

is my logic absolute garbage? Anyone have experience with this? Curious of thoughts or questions or discussions around this topic from others

 

[bernard]

Not sure what the argument is here, but yes, direct business expenses are deductable.

 

[Ryuzaki]

I think you're mixing some terms around. You aren't taxed on your revenue, you're taxed on your profits. And profits equal revenue minus expenses.

You should definitely be itemizing and writing off your business expenses (which are not included in the standard deduction so don't screw yourself by being lazy at tax time).

The logic is interesting and always hard to talk about. It's confusing enough that people often arrive at the wrong conclusions (not saying you have). What you're saving is whatever your income tax total would be on the cost of the content. If you spend $100 on content and that reduces your tax burden by $100, then you save the 25% of $100 off of your taxes. You could re-arrange where that comes from mentally and say you saved it on the cost of content, but I don't think that makes sense ultimately.

You'll often hear people say stuff like "you could write off that gaming computer and say it's a business expense" as if that means you got the computer for free, or that you SHOULD buy crap you don't need and "charge it to da game" as if it saves you money. It doesn't. It costs you, in this case, 75% of the cost of the crap you didn't need.

These are the same people that will drive 30 minutes across town to save a penny per gallon of gas, though. They aren't good with math or logic.

 

[bernard]

I'd like to add that when I became self employed a lot of people would add suggestions to buy stuff because I could save taxes and VAT.

Actually there is only very few items that can have personal use that you can deduct, mostly computers (and apparal), phones and broadband. Maybe an office chair.

What that comes to for me is a Macbook Pro, which I calculated I probably save $500 on, compared to if I bought it for personal use.

 

[AhFreshMeat]

I suppose this is more of a general
business question. Intetesting to see these replies and truly helpful

I see, that makes sense bernard, i don’t have intentions that people suggest; such as to use the business to grab money for personal items. My goal is to be able to calculate how much I profit per how much I spend on content/links.

This is something the youtubers and most guides don’t really even mention... at all. So when a newbie considers scaling its easy to overlook the fact that its a taxable business ‘expense’, not a fully out of pocket loss.

I’m going to guess grabbing links for cash are a business expense as well.

 

[bernard]

the fact that its a taxable business ‘expense’, not a fully out of pocket loss.

Honestly, this is a wrong way of thinking about it, which probably has to do with your company structure.

You're probably thinking about it in terms of "your money". You have the option to go spend the money on something nice for yourself or if you should forego that and spend it on outsourcing.

I can see how you would think like this when you're starting out, I did as well, but it's not helpful.

You should view your website as its own business entity.

It generates income and it has expenses and the profit is the result.

From that profit you can pay yourself salary or dividends. That's YOUR money. The profits are not your money, that's the business money.

If it makes $1000 a month in profit, then you can choose to pay yourself a certain amount, same as a job. Then you choose exactly what to do with that money.

Once money goes out of the business, money for your to spend, then it gets taxed and it should NOT go back into the business.

The money you spend on outsourcing does not get taxes. Doesn't make the outsourcing cheaper, but using taxed money to pay for something, makes it a lot more expensive and is a big no-no.

If you choose to spend money on outsourcing, say $200, then your business/website, only generated $800 in profits and from that you can pay yourself the same salary and do what you want with it.

The $200 spent on outsourcing has nothing to do with your personal income and you should not consider it as such.

The money you pay yourself is your income, the total earnings of the website is the business income. The two should not be considered the same.

Your goal is to maximize profit (income - expenses), but you decide how much of that you want to pay yourself.

 

[eliquid]

I wanted to answer this when it first posted to the forum, but I passed on it because of the way it was worded and such.

I think now I see what that OP was asking, after others jumped in to answer.

1. You need a good, really good tax person that specializes in your country and setup. Meaning, if you are a small business and you do RE rentals for cashflow, find the best tax person in your locality that is also a small business rental person who owns RE for cashflow.

To find someone like this, google or youtube things like "tax for XYZ business" and find someone in your country or locality where you can watch and read their suggestions and if you agree with them, reach out.

2. THEN find another backup tax person. They don't need to be small business rental person themselves, but they need to have lots of clients that are.

3. Both of them need to be proactive with you, not just order takers for when you have a question.

4. Bonus, find a tax person for each business you do afterward. For example, I have 2 people I refer to now that know SaaS and small business well. I have another that specializes in active day trading/traders since the first 2 don't specialize in this. I use my trading guy for all and every tax cut I can get on trading questions, and my other 2 when I need help with SaaS and small business stuff like R&D credits.

I know people are going to say you don't have to do the above the way I laid it out, but I've been through at least 12+ tax professionals in the last 20 years. 2 of which were from the most prestigious tax firm in my state which included a full firm of prior IRS agents.

And guess what, I didn't get the truth and proactive tax savings I needed until I found the 2 professionals that did what I did, or serviced people like me. I just found them in the last year.

I even go above and beyond and hire 2-3 more people on UpWork to bounce the same idea/questions on to make sure too. Im not saying you need to do this, but I like having answers when I need them and I can afford to do so now.

My tax strategy is now:

1. Bench.co for basic bookkeeping. They integrate with all my accounts/platforms and I get to have a monthly chat with them. I also get free tax advice from them as needed from their legal team ( well, free as in part of the monthly I pay them for bookkeeping ). This is a monthly recurring cost.

2. A CPA that in the past, I used for everything tax guidance. However, now I use her for second opinions on tax questions and checking the math from the Bench.co bookkeeping, and for filing the taxes/keeping up with paperwork quarterly. She is a pro at auditing and was ranked the best auditor in the state.. so I keep her for the filing and math/paperwork stuff. I use to use her for everything, but I learned every tax pro has a different safety level they operate in and business they are good at, so I just use her for specific things now like auditing. She isn't proactive either, she acts like a order taker mostly. So the quality of service I got from her, was only as good as the questions I could ask of her, know what I mean? I only pay her as needed, but she is great at auditing and filing and as a backup resource.

3. 2 tax professionals that understand my locality and setup, and either do SaaS/small business, or have tons of clients in this space. They are also proactive with me. I pay them a retainer to use them so Im not out a huge amount of money on this.

4. 1 tax professional that is an active day trader like me, who is also proactive. I pay them a retainer to use them so Im not out a huge amount of money on this.

5. 2-3 UpWork tax lawyers who I can use as a second opinion. I only pay them hourly for when I need them, on UpWork. I like to bounce ideas off them when something is really complicated or really important, like when I wanted to start paying my kids from my business.

How I use to do it? I used to use 1 person for everything. I did that, like that, for the past 20 years and it always bit me in the ass and I would go around thinking, " I cant find the best person to do my taxes and still need to hunt someone down!".

Well guess what, there isn't 1 best person. You will need to "layer" your strategy and approach for max potential like I did. One person can't know everything you might want to know. Find multiple people and pick out their top expertise and use them for that.

Also, one of the most difficult things I learned from outside people ( non-tax people, non-business owners ) was how they view "write offs" and expenses.

For example, I know someone that said I should buy a new Cadillac Escalade because I could write it off on my business.

I ask them "why".

And they basically say "why wouldn't you since it would be free. lol"

I ask them why it would be free and they said its a write off.

OK... my kids ask why we aren't going to Florida this year and I tell them because I want to invest the money in other places instead and they look at me crazy and say, "isn't it free since your business writes it off?".

The disconnect seems to be, that if I have $100k in my business and I want a new car/trip, that after I make the transaction I have $100k still in my business checking account, and that the write off means "it was free". Like someone else paid for it.

Or that if I have $100k in my business and buy a $80k SUV, that the $20k I have left was a good choice since the SUV was a write off for me and I come out ahead because I got to write it off, like it was some magical trick. Nevermind I could have used that $80k elsewhere, like in a RE rental.

But no one seems to realize that maybe you don't need that SUV ( or gaming computer, etc ) or that buying it took away another opportunity, or that the money spent was still REAL money out of the business. It just seems like some magical way to get something for free or extremely low cost, when in reality it cost the same amount of money ( outgoing ).

If you did it personal, you'd have to pull out maybe $100k to buy that $80k SUV ( since you would have to pay tax once you bring it over to personal, the tax would be the $20k difference from $100k to $80k ), but the item like this SUV is still $80k no matter what.

That's about the largest issue I see non-tax and non-business people make when it comes to write offs and understanding it. They view it as a discount or free or huge savings, but it's only the tax amount you would save since it wasn't taken out of the business and passed to you personally.. which would happen even if you didn't physically move it out at the EoY for pass-thru entities anyways.

The largest issue I see new business people make though, is not knowing their numbers MONTHLY. They make money, take money out and repeat this process until December when they rush to see what they can save/do at EoY only to find they have this huge tax bill because they already pulled money out the last 11 months personally and now can't afford that new Cadillac they want to "write off" and wonder how the rest of the business world does it.

You gotta look at these numbers every 30 days and plan out, then take money out as you need it based on your plan for what you are doing that year.

 

[sleepysentry]

As others mentioned, you will save yourself a lot of time with a good tax person. Try to find one who has worked with Internet businesses before if you can-- it helps if the accountant knows your industry.

You can absolutely deduct the cost of articles, even if you do not make a profit. Depending on where you live there are also a host of other things you can deduct:

1. Web hosting / domains
2. Themes / web design
3. Internet (portion you use for work)
4. Portion of your home you use for work (rules vary depending on where you live-- check with an accountant)
5. Your accoutant (duh)