November 2019

Tax Planning For Bloggers

Blogging can be considered a relatively new type of business industry as the government wants to tax online businesses. When a blogger creates a blog in order to gain business income, figuring out what can and cannot be deducted from your taxable earnings can be a daunting experience. Since the industry is fairly new, the rules can be pretty confusing for someone who is claiming this type of income for the first time. Please see the following list of expenses that can be claimed on your return (if they make sense in your situation of course) along with a few items that probably should not be claimed unless it makes sense in your particular case. In order to achieve the maximum legitimate tax savings, is of course, to hire an expert to help analyze your individual scenario. Here are some examples that may apply to most bloggers.

The following are claimable:

Hosting fees, internet access fees, blog template and design fees are all part of running an internet-based business and can be deducted. There may be times that design fees should be capitalized such as if the templates designed are going to be used for many years to come (though this is hard to determine so most people probably just expense it).

Domain name registration fees, trademarks and patents are considered eligible capital property but they depreciate yearly. I would make the argument that yearly domain fees are charged on a subscription basis rather than being an asset.

Computer software such as Adobe Photoshop can be considered capital in nature. The depreciation rate is 100% and is subject to the half-year rule, which means you can only claim half the cost in the year of purchase. Please note that some software changes year after year and as a result an argument can be made for expensing it as opposed to capitalizing it.

Ads purchased to promote the blog (such as facebook ads for example) or money spent on SEO services, can be deducted from earned revenues. You can also deduct items that you buy for prizes to give away on the blog as part of contests and promotional giveaways.

If you use your home as your principal place of business, you can claim a portion of home expenses (insurance, property taxes, mortgage interest). The amount you can claim depends on the percentage of the total square footage of your home that you use for business. If you aren’t exclusively using the space for business, the amount you claim must also be prorated based on the amount of time you use it for business. This rule applies to any home based business – common sense applies.

Blogging equipment such as smartphones, laptops, or cameras are capital assets that you can be claimed on your return. However, you will have to deduct the cost of those items over a period of several years as the value of the asset depreciates.

Things that should not be claimed (unless they can be justified):

Outfits you photographed for the blog can seem like something you may be able to write-off, but this is not the case. It may be able to be claimed if it a uniform or a costume and is only used for business purposes, such as promoting the blog itself. Most clothes and accessories you buy and wear in everyday life cannot be deducted as an expense. People should take caution when making these types of claims although I have seen some fly such as the Remax Realtor who has the Remax logo embroidered in a few of his suits but again this may be a one off.

Unless you are a fitness blogger and can prove that your gym membership is a business expense, gym and other fitness fees are not tax-deductible. I would tend to be careful with this one as a fitness blogger may use the membership for personal purposes as well.

You may feature your pet on the blog or other mediums such as Instagram, but any animal-related expenses such as doggy daycare fees and pet insurance cannot be claimed.

While professional association memberships are tax-deductible, you cannot deduct club membership dues (including initiation fees) if the main purpose of the club is dining, recreation, or sporting activities. Please note that this applies to all other business types as well.

When saving receipts for your blogging business, you should consider it a business first and foremost which means applying the rules the same way and asking yourself if the expenditures make sense. Common sense needs to be applied to what is claimed.

Like any other business it is important to keep track of all revenues and all expenses and bookkeeping is very important.

It’s Time to Stop Raising The Minimum Wage

Many people like to argue that people should have a living wage to boost them out of poverty. It is clearly evident that poverty is a concern to many and that there needs to be a solution – which I do agree with. However, I do not believe that raising the minimum wage in itself is the solution. There are a few fundamental reasons for this.

The minimum wage increase has actually killed jobs since people are going to want more experience from their workers to justify the higher wage. This could be one of the reasons it is becoming more and more difficult for people to get entry level jobs. Businesses would have to hire fewer people in order to maintain the same level of profit or sustainability year after year.
It kills the incentive to work harder, why should people work harder when new staff are getting paid close to what the senior staff make (depending on industry of course).
An increase in itself does not necessarily reduce poverty as it seems to be pushing the cost of products and services up since businesses have to find a way to be able to sustain the new wages plus ever increasing expenses when they have to pay for their materials and services as well (in most cases, these costs are passed on to the customer).
The government is getting more tax dollars – just because a person makes more, does not mean that they get to keep more. The increase in wages just puts more people on the tax roll since benefits and credits have not been reflected by the change in wage. For example, if a person makes more, they contribute more to Canada Pension Plan (CPP), Employment Insurance (EI), and personal income tax.

I would actually like to propose a different idea – now that wages are around the $15.00 per hour mark, I guess we have to leave it as people have grown accustomed to it. Instead, I would propose something like this for example, instead of raising the minimum wage, raise the minimum tax exemption to around $25 000 both provincially and federally so that people are able to keep more for their basic needs. I would also raise the CPP exemption to around $12 500 from the $3 500 that has been the case for a long time. We know that most people make more than $3 500 a year. I believe this since CPP is just another tax of around 5.25% on people’s earnings over $3 500. I believe that CPP is okay, but that different things can be done to make more efficient use of it, Please refer to my post ” Canada Pension Plan: Should the Canadian Government be Responsible for Your Retirement? If Yes, There Has Got to Be a Better Way for further reading.

I believe that the above approach would work better than just hiking the minimum wage. Even with the increase of minimum wage or a different solution, some people may always be in poverty – which is no one’s fault but the individual. For example, smoking, drinking, and gambling may be some habits that are competing for valuable dollars versus one’s basic needs and the government knows it so that is why they choose to tax drinking and smoking (it is not the government’s business what people like to spend their money on nor should the rest of society have to pay needlessly for other people’s habits). As a result of this position, I believe that the government would be providing a helping hand rather than a hand out. Then again, I am not advocating an increase in minimum wage, but instead of a minimal amount that people can keep and do what they want with (hopefully keep themselves out of poverty). A side note: I am not advocating for a $25 000 basic income in terms of being entitled to this money without working for it, but money that a tax payer is entitled to keep if it is earned income. I personally believe that the type of solution that I propose would be the beginning of a permanent solution rather than just a band aid solution such as raising minimum wage without changing anything else.

Go Away Green Card – Don’t Bother Me

Many Canadians come back to Canada after a prolonged stay in the US for their own reasons but when they do, many simply let their Green Cards expire if they have one thinking that their American tax obligations will just expire along with the card. This, in itself is not true.

The process to surrender your green card, also known as Lawful Permanent Resident (LPR status) is actually straight forward. A LPR must contact a local U.S. embassy or consulate and make an appointment. The embassy or consular official will provide USCIS Form I-407, Abandonment of Lawful Permanent Resident Status. Upon receiving the form, it must be filled out and submitted.

An I-407 form allows a legal permanent resident to officially abandon their status. You would need to submit it to a U.S. embassy or consulate in your area, as well as your actual green card, there is no fee for this.

A consular officer will conduct an interview to make sure that you fully understand the consequences of giving up U.S. residency, and that you are doing so voluntarily. You will get a copy of your form I-407, this will help you in the future if you’re applying for a U.S. visa or entry, to avoid confusion about your earlier status.

There is actually another way that one is able to relinquish his or her green card. A person can actually file Form 8833 “Treaty claim of residency in another country” – Under the Canada-U.S. Tax Treaty, one can take a treaty – based position that they are a nonresident of the U.S. for tax purposes. In order to dispose of the green card in this manner, the tax payer must file Form 1040NR with the Form 8833 attached to inform the IRS that he or she is making a treaty election to be taxed as a nonresident alien as a result of becoming a resident in the named treaty country. A side note: Technically Form 8833 is not required if payment or income items on the tax return are $100,000 or less, but in order to eliminate questions or concerns during a review, the Form 8833 should be filed.

Although it sounds simple to relinquish your green card – it might have some other undesirable consequences, so it is probably a good idea to seek out competent legal and tax advice before making the decision.