During my first year of blogging in 2007, I watched my new personal finance blog grow from earning nothing for months to earning a little over $500.00. The whole concept of making money blogging was surprising to me and frankly I wasn't really prepared. I kept emails from my advertisers, but I didn't keep track of the financial details like I should have. This unfortunately bit me at tax time the following year. After spending almost a whole day doing my taxes, I decided I really needed to keep better track of my blog finances. I immediately put an initial tracking system in place that focused on simplicity. I'll be sharing that system with you further down.
Tracking your blog's income and expenses
An essential part of treating your blog like a business, is tracking your blog's income and expenses. Tracking income and expenses not only provides you with an up to date perspective on how your blog is doing financially, but it will also prove incredibly useful at tax time. For many, the accounting work behind a blog or small business can seem a bit overwhelming, but in fact it's fairly simple and doesn't require a great deal of time. Of course for larger blogs, where there may be contractors, employees, advertisers, leased office space, and many different expenses, the accounting can get a little complicated and an accountant is recommended. I personally have been blogging and earning side income for 6 years, and haven't felt the need to use an accountant yet.
Income tax on your blog income
I mentioned taxes, unfortunately our government wants their fair share. Income from your blog is taxable and should be reported on your tax returns. The US tax system is a "pay as you go system", meaning you have to pay taxes as your earn income. For those of you working for a company, your employer does this for you. If you're independent or run your own business, you'll need may need to make quarterly tax payments to avoid penalties.
There are rules called Safe Harbor rules that may apply to your blog's income and can help you avoid penalties. You can read more on Safe Harbor rules in this article at Bargaineering. If you aren't sure, always consult a tax adviser. Trust me, I'm far from being a tax expert.
How I track my blog income and expenses
there are many different options you can use to track your blog's income and expenses: from very powerful software to simple spreadsheets. As I said, I love simplicity and personally use a combination of the following:
I created a simple Income spreadsheet using Google Docs that tracks my income and expenses on a monthly basis. The top portion contains any revenue from advertisers, affiliates, and my consulting/development work. I put a line item for each advertiser and affiliate so I can see which income sources perform the best. I also have a line item for each expense as well. These are things like hosting, software services, domain names, internet, etc. Breaking these out is a big help at tax time. I keep my spreadsheets for each year as well, so I can compare prior years with my current year expenses and income.
I use Freshbooks to manage all of my consulting and development work. Freshbooks is used to track my projects, time spent on those projects, managing my client contacts, client invoicing, and for reporting. Freshbooks has proven to be an invaluable tool for my services based business and has the additional advantage of giving my business a professional invoicing platform my client's appreciate. Highly recommended.
I keep my business and personal accounts separate. I actually have three accounts at ING Direct. One is a a Firewall account that where all of my electronic transfers or payments come from. For example, if I receive a payment from Paypal, the Firewall account is the account that actually receives the payment. I do this to protect myself in the event any of my payment services accounts get compromised. I also keep a checking account that I use to make payments or purchases. I also have a savings account where I keep excess funds. ING Direct is a really great online bank with exceptional customer service. I've been using them for about 5 years, and have absolutely zero complaints.
If you would like to open up an ING Direct account for your business or personal use, contact me and I'll send you a referral. You'll get $50 and I'll get $10. I've been using ING Direct since 2007, and have been extremely happy with them. They offer some of the best customer service I have ever worked with.
I also use Paypal for all electronic payments. I'm not a big fan of them, but they are pretty much the defacto standard right now for electronic payment. I prefer to not deal with paper check and cash payments, and thus get all of my payments sent via Paypal. I track all Paypal transaction fees as expenses and write them off as such on my taxes.
The other primary benefit of tracking your finances is so you can see how your blog or website is doing financially. We all want to be profitable, and keeping track of your income and expenses each month will let you see how you're doing. Like most, I love income and despise expenses, so I minimize my expenses. I don't generally pay for much of anything outside of hosting and I do pay a premium for that. With blog hosting, you get what you pay for and you can't earn income from your blog if it's down or slow. Don't skimp here, you'll regret it.
I also use my financial information to track which advertisers and affiliates are working for me, and which are not. I often change strategies, prune income sources and add new one's frequently. My income and expenses spreadsheet is the primary driver for these decisions.
Keeping up with income and expenses for my handful of blogs and websites literally takes only a few minutes each week. Honestly, if I spend more than 30 minutes I'd be surprised. I've found that spending a little bit of time each week, saves an enormous amount of time quarterly and at the end of the tax year. Tracking your finances does not have to be complicated, do what works for you. Just be sure you track everything that comes in and everything that comes out.
photo credit: khrawlings