The Business Side of Blogging
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A profitable blog is a business. An unprofitable one is a hobby. If you want to make a living from blogging, you need to understand the business side of blogging. No, I’m not an attorney or financial consultant, but that statement is a simple fact, and in the U.S., the Internal Revenue Service (IRS) will confirm that.
In my opinion, you should think of your blog as a business from the very start. That should be your intention. You may not need to do all the things a start-up does during the first month of full operation, but some things are necessary to do that early. Later, you can expand with the help of legal and accounting professionals. Nevertheless, If you intend to make money, you must understand the business side of blogging.
Here is a general overview of the business side of blogging.
The Business and Creative Sides of Blogging
Yes, we all know you as the kindly passionate blogger that you are. Your goal in life is to find a need and meet it. You know you are in the business of helping people find solutions to their problems, and you love it. BUT…there should be another side of you that no one sees. That is the hard-nosed businessperson who is out to achieve profits. Yes, henceforth, you must be a split personality. You will make some decisions because they help others. Yet, at the same time, you’ll need to make business decisions that will benefit only your bank account.
Am I coming across too strongly about the “hard-nosed businessperson” idea? If so, it’s simply because I want you to understand that there is a very clear distinction. You want to think twice before you cross the line between the two parts of your blogging endeavor.
Let me give you some examples of what I mean.
The kindhearted blogger will say, “I’m just starting out, so I’ll use my personal checkbook to pay for supplies and services I need to get started.”
The hard-nosed business person will say, “I want a hassle-free tax deduction for my blogging expenses, so I’m going to open a separate bank account from day one.”
You can’t let the casual kindhearted blogger that you are ruin opportunities for profit. You may not see yourself as having a split personality, but at the very least, you need to visualize yourself wearing different hats at different times.
Be sure that you look in the mirror to see what hat you’re wearing when you make particular kinds of decisions.
Let’s look at some of those decisions that require you to wear your business hat.
Most people don’t think of branding when they think of business decisions. It is an important one, however, because it identifies you in the marketplace. That’s no small thing, and the earlier you think about it, the better.
One of my favorite stories about blog branding relates to a little known blog called Ariannaonline.com, run by a woman named Arianna Stasinopoulou. It was an activist site masquerading as conservative news, and her first campaign was to support the impeachment of Bill Clinton.
Later, three things happen:
- She married a man named Michael Huffington, who turned out to be gay
- She changed her politics from conservative to liberal
- She morphed Ariannaonline.com into HuffingtonPost.com. In recent years it has been called HuffPost.com.
In 2011, AOL purchased HuffingtonPost.com from Arianna Huffington for $315 million. Verizon later bought AOL, so they own it now, and Arianna Huffington no longer has a formal editorial role.
Create Your Future
My point is that a little pre-planning can help you reach goals you may not have started to dream yet. You don’t need to grow like a turnip as the HuffingtonPost.com did. With intentionality, you can project where you want to be in five years and in ten years.
That means you want to think about the name you use and your logo. You want to think about whether you’ll be happy with a blog or whether you want other media holdings, as I describe in my Hidden Blogging Riches post.
No, this is not far-fetched. You don’t want to create an expensive mess that you will need to sort out later. You may be the next Arianna Huffington, and you can learn from her.
Earlier, I mentioned banking procedures as a mark of professionalism. Believe me when I say that you want to keep your personal bank account separate from your personal bank account. From Day One.
If you intend to reach the financial goals you have set for yourself, you cannot think of your blog as some kind of lark. You are not following the latest fad, nor are you trying to accumulate a little mad money. You are involved in the real deal with the blog, and you do yourself a favor when you adjust your attitude so that you get the greatest benefit from your efforts.
One of those attitude adjustments is that it takes money to make money. Your blog is not a slot machine or an ATM. It can be a highly profitable business if that is your intention. That’s why you want to take a businesslike approach. So, since it takes money to make money, you need to put a certain amount of capital in your business account. In blogging, that can be very small. I recommend a minimum of between $100 and $500 to start. You’re not opening a lemonade stand, so don’t try to make money from lemons and sugar you borrowed from your mom. You need genuine capital.
Fictitious Name Statement
You can’t open a business account until you have a business name. Your bank will require what is called a “fictitious name statement” in the United States. Laws vary elsewhere. You could use your own name, but you want separation between your real self and your fictitious self. Make sure you’re wearing your business hat when you select a name.
In most places in the United States, you go to your county recorder and pay a few dollars to get your fictitious name statement. That document will give you several rights, privileges, and obligations, and it’s important to possess.
With that statement in hand, go to your local bank (preferably not the one where you do your personal banking), along with your minimum deposit, and open a business checking account in the name of your newly hatched company.
If you have chosen a URL along the lines I have suggested, then that might make a nice brand name for your business. Or you might change it if you have thoughts about expanding in the future. You may call your blog “YourBlogName.com,” but you may call your business “Blogging Industries Media,” or something like that. That’s the kind of brand name that you want to use when you get a fictitious name statement and to use it to open your bank account. Again, I’m suggesting that you think ahead because you may want to expand in the future.
Tax Identification Number
In the United States, the big question is whether or not you should use your personal Social Security number to open your business bank account. My personal advice is that you not do that. In business, many people will ask for your tax information, and if you use your personal Social Security number, then you are forced to make it available to them. In our present era of identification theft, you want to avoid that.
Fortunately, you don’t need to do that. The IRS allows you to apply for an Employer Identification Number (EIN) for any kind of business even when you have no employees. You can get one online. That way, you never have to have to reveal your personal Social Security number to anyone. Your EIN, by law, satisfies tax reporting requirements. Never give up your personal Social Security number without a fight.
Some may think that they’ll go ahead and open the business bank account with their Social Security number because it’s quick, and get an EIN later. If you do that, you’re not wearing your business hat. Get the EIN first. Keep things simple in the first place by following this “best practices” procedure.
Open a PayPal Business Account using your business name and EIN at the same time as you open your business bank account. Many advertisers and affiliate companies want your bank account number and the corresponding routing number to wire transfer money you earned. However, a large percentage want to send it to your PayPal account.
Don’t use your personal PayPal account. That’s just a more subtle was of “commingling funds,” and you don’t want to get into that bad habit even with a sole proprietorship.
PayPal makes it easy to transfer money from your PayPal Business Account to your bank business account. It is best practice to follow that pattern.
When you open your bank account, be sure to order checks and to get a debit card. You’ll need both soon.
Legal Ways to Organize Your Blogging Business
There are several ways that you can organize your blogging business. Each is a separate business entity, and different rules apply to each. You can start simple and develop a more complex business structure as you grow.
According to the U.S. Small Business Administration (SBA), “A sole proprietorship is the simplest and most common structure chosen to start a business. It is an unincorporated business owned and run by one individual with no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business’s debts, losses, and liabilities.”
This is the business structure I was suggesting when I spoke about getting a fictitious name statement, EIN, and business banking account. The SBA may be correct when they say there is no legal distinction between your business and you, but anyone who has operated as a sole proprietor knows it’s not true in a practical sense.
You want a separate business identity as a sole proprietor using the methods I have described. Your life will become a nightmare when you start trying to do business as an individual. You will be subject to confusion, Internet scams, and you may run into tax issues that will send you screaming into the night.
You want to wear those two hats at different times to avoid all that possible madness. When you run all your business income and expenses exclusively through your business bank account, then you have an audit trail that makes life easy at tax time. You never want to co-mingle personal and business plans.
If you get to the place to take a monthly salary from your blog, you transfer it once a month from your business account to your personal account. You don’t keep dipping into your business account for personal expenses just because it’s convenient.
As the SBA says, you are still responsible for your business’s debts, losses, and liabilities as a sole proprietor, but I think you lessen your risk when you differentiate between your personal self and your business self. When tax time comes around, you still pay taxes as you would as an individual, but you complete a Schedule C and other IRS documents. It’s a real advantage to keep your personal and business income and expenses in separate compartments.
Of course, you’ll want to talk to accounting or tax professionals about these matters. I am speaking from my personal experience, and I have decades of it, so what I say may have some merit. Don’t get in the habit of mixing personal and business income and expenses. Keep them separate at all times, even as you get started.
Limited Liability Company (LLC)
LLCs have become popular in recent decades. They offer tax benefits and legal protections not available to Sole Proprietors but are less onerous than a full-blown Corporation. In a sense, an LLC can be a good business structure depending on your personal circumstances.
As the SBA says, “LLCs protect you from personal liability in most instances, your personal assets — like your vehicle, house, and savings accounts — won’t be at risk in case your LLC faces bankruptcy or lawsuits. Profits and losses can get passed through to your personal income without facing corporate taxes. However, members of an LLC are considered self-employed and must pay self-employment tax contributions towards Medicare and Social Security.” https://www.sba.gov/business-guide/launch-your-business/choose-business-structure
I’ll talk about taxes below, but I want to emphasize here that laws regarding various kinds of business entities are dictated by States, not the Federal government in the U.S. So, you read as much as you can about them if you are thinking about graduating from a Sole Proprietorship to an LLC.
The SBA offers this insight: “LLCs can be a good choice for medium- or higher-risk businesses, owners with significant personal assets they want to be protected, and owners who want to pay a lower tax rate than they would with a corporation. profits and are responsible for all your business’s debts, losses and liabilities.”
You want to consult with both an attorney and a tax consultant before you make the leap to an LLC. You can form an LLC quickly and relatively cheaply at places like LegalZoom.com. Remember, however, that this paperwork is just the tip of the iceberg. Most of the legal and financial ramifications are below the surface.
A corporation is not a person wearing two hats. A corporation is an entirely different person, a separate legal entity. It’s distinct from its owners. Corporations can make a profit, be taxed, and can be held legally liable.
What is your role in your blogging corporation? You are a shareholder, director, or even an employee—but you are not the owner. Your right to ownership is determined by how much stock you own. If 51%, you’re still in control.
This is a vast simplification, of course. Unless your blog turns into a major media organization, you may never need this kind of structure. And if you do decide to morph into a corporation for tax or liability reasons, then you want solid legal and accounting advice before you do it.
As the SBA reminds us, “Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. Corporations also require more extensive record-keeping, operational processes, and reporting.”
There are two flavors of Corporations. One is a C Corp, and the other is an S Corp. Different state and federal laws apply to them in the U.S., as well as different taxation policies.
I mention corporations only so that you are aware of how they fit into various kinds of business structures that may help you as a blogger. If your lawyer or accountant (or liability insurance carrier) tells you that you need one, you’ve entered the big leagues.
I’ve saved partnerships for last. There are several kinds of partnerships that include two or more people agreeing together to achieve a particular goal. They can be operated like a sole proprietorship or an LLC partnership. There are tax and liability issues with each type.
When it comes to blogging, sometimes two friends will decide to form a partnership where they share the writing, administration, expenses, and income. The problem that I have with blogging partnerships is that I have seen a number of them formed, but none that ended successfully.
Blogging friends became blogging enemies. In a couple of cases, there was terrible wrangling over who owned the rights to the domain name, logo, the money in the bank, and unhappy disagreement about who owned the copyright to the blog posts.
Everyone thinks that a partnership is a great idea going in. The question is, how do you end one amicably? In my experience, you don’t.
As I have counseled others in the past, I believe it is best not to form a partnership. Instead, the lead person should hire their friend or relative as an employee or independent contract workers. The friend or relative doesn’t get a percentage of the business, only an hourly wage or flat fees you assign to various tasks. That way, you can work together, but the lines of ownership remain clearly defined.
You may know of stories where people had long, happy business partnerships. They are the exceptions, not the rule. I hate to be a Gloomy Gus, but I strongly encourage you to look before you leap into a partnership of any kind.
Why do creatives like me always suggest that you consult with a licensed attorney, Certified Public Accountant (CPA), or others trained in specialized fields like health? It’s because anyone can talk about these matters in a general way, but legal, financial, and health matters always come down to “cases.” Your case will differ from anyone else’s, so you need to speak to someone in your geographical area (laws and procedures vary) who understands the specific situation you face.
The general information I provide, for example, should help you ask a professional some intelligent questions. But you should never rely on general observations to make specific decisions. Your particular case is different from all others, and it requires the services of a professional to help you consider your best course of action in your circumstances.
Business people pay taxes. You have to properly register with your state tax board and with the federal government, and sometimes other agencies.
Income and Benefits Tax
You will pay income tax no matter what kind of business structure you have. You’ll either pay on profits as a sole proprietor or as the head of an LLC. If you find yourself the stockholder in your own Corporation, of which you are an employee, you’ll likely pay taxes as an employee and perhaps on capital gains on your shares. Corporate income taxes are also due, of course,
In a sole proprietorship and LLC, you are eligible for certain tax advantages. The biggest one is that you can subtract your expenses from your total income. You only pay income tax on your profit. That’s reason enough to have a separate bank account and to manage all income and expenses separately. That way, you can easily maximize your deductions.
Income tax is not the only type of tax you will be paying. When you work for a corporation, they pay a portion of your Social Security and Medicare taxes. When you are self-employed, which you are as a sole proprietor, and in many cases when you have an LLC, you must pay 100% of these taxes yourself. In addition, many states require you to pay into their unemployment fund.
Finally, the other major form of taxes you become obligated to pay the sales tax. Sales tax laws vary widely from state to state and sometimes even from county to county within a state. The basic idea is this: you must collect sales tax when you sell any tangible item to a buyer, and you must remit those funds to the state on a timetable they dictate.
Within the last 10 years of this writing, you did not need to pay sales tax on anything you sold outside your own home state. All that has changed. You have sales tax exposure everywhere in many cases.
So far, digital products have not been considered tangible products in many places. That means you can sell ebooks, software, or other such products without having to sign up for your state franchise tax board. Also, you can sell your services without tacking on sales tax. However, be aware that the tax landscape is changing in some states want to charge sales tax for digital downloads and for services you perform.
My advice is that you thoroughly read the websites of taxing agencies in your country, state, and county. Make a list of questions you have. If I were you, I would not pick up the phone or go to the tax office with my questions. Instead, I would go to my Certified Public Accountant (CPA) and ask my questions there. You will have to pay your CPA a fee, but you’ll get better advice, and you’ll get tips about how to reduce your tax liability.
Embrace Your Business Role
Many Creatives dislike the business side of their work. As I’ve mentioned, I’ve worked with authors for decades, and they always say they are good at writing but bad at promotion and business.
I always try to be kind in such cases, but I think that approach is counterproductive. It’s like a baseball player saying he likes to throw the ball, but he doesn’t like to catch it. Creative people can and should make money. But today, more than ever, they cannot live with blinders over their eyes, hoping they can ignore promotional and business responsibilities.
If you intend to make money, then you’re going to have to run a business. Even if you think you can game the system by not opening bank and tax accounts, you are still in business but operating illegally under the table.
In my experience, people who try to short-circuit the system never make much money. The skullduggery takes more energy than following the rules.
If you intend to make a profit with your blogging enterprise, as I believe you should, then you want to open yourself to the system. You can make enough money to meet your obligations and still have enough money to fund your hopes and dreams.