Income Tax Tips for Bloggers and Freelancers

Many budding bloggers who wants to earn some quick money online, may not have any knowledge on the income tax that you have to pay to your respective government agencies based on your freelance income. Paying income tax on any type of income is mandatory for every citizen based on the taxing rules of your country. For example, in India, any income above 200,000 per year is taxable for general tax payers.

But are there any ways to save taxes on your Freelance income? Of course, there are a number of ways and this post is about the same based on my recent experiences with the Income tax department (Please note that you may have to take help from a tax consultant to deal with your specific scenario).

My experience with blogging and income taxes

As you know, my main job is not exactly blogging. I have a regular job in the software industry and that’s my main income stream. However, there is also some income (considerable) generated out of my online activities.

Since I do not have any company registered for my online businesses, all this while I have been paying taxes at the highest bracket for every buck that I earn. After some consideration, I decided to reorganize my finances a little from the income tax point of view.

Tax Tips for Bloggers

The following are some tax tips for bloggers and freelancers based on the little information I have with respect to our complicated tax rules.

  1. Scenario 1: If you are not in the payroll of any employer (government or private organization), and have the potential to generate significant income via freelancing, it’s always good to register a company and report all freelance income and expenses under that company. When you have a company for your freelancing business, you can also save some tax towards expenses such as fuel, telephone bills etc. However, registering a company comes with certain responsibilities such as annual auditing, filing quarterly statements and IT returns in specific formats. Hence take this route only you have significant income
  2. Scenario 2: If you are on your own and there’s only limited income (say below a couple of lakhs per annum in the Indian context) that you generate, then there’s no need to have this overhead of registering a company. In this case, you can still file the ITR-4 for reporting your business income and pay taxes for anything above the exemption limits. By the business income, include even stock or forex trading income as well
  3. Scenario 3: If you are already under a company’s payroll and you earn from freelancing as well, ideally you have to file your returns in ITR-4 (business income reporting). This may be okay to do if your freelancing income is much smaller than your actual pay from regular job. However, some employers may take note of your IT returns filing pattern (ITR-4 instead of ITR-1 or 2) and might question you for any conflict of interest. In general it’s not good to proceed via this route as you end up paying a lot of taxes along with getting under the scanner
  4. Scenario 4: When you have high income from both regular job and freelancing, it is better to move such freelance business income – wherever possible – under your spouse, sibling or family member who do not have a permanent job. This saves you quite some money in the form of taxes and moreover you can focus more on your regular work while also earning well on freelancing or blogging (whichever is relevant)
  5. Scenario 5: Deciding not to report any freelance income – this scenario ideally should not exist. It’s a matter of time before you are hunt down by the authorities as they have all information about your transactions

Scenario 4 is what I have done this year and it’s working well for me at the moment. I have been paying a lot of taxes for no reason where there was always someone at home to take care of your blogging business needs. All that it takes is a new Bank account, PayPal account, PAN card and a new Credit card. Moving all affiliate accounts, online campaign accounts, billing details etc are the next logical steps and that’s all! You are all set to save taxes.

Additional income tax tips include: (a) paying advance taxes so that you can save some money in terms of interest and penalties on tax, (b) tracking each and every income and expense carefully (c) providing/taking tax-deducted-at-source information and (d) saving up some money to pay the taxes – don’t spend everything that you earn via freelancing.

That’s pretty much about taxing on your freelancing income. Let me know, if you have more to add to this as experts in the taxing arena.

Comments

  1. Hi Ajit,

    Good Article !!!

    Some of the points would like to add that

    1. Direct Expenses spend for earning online income are deductible under Income Tax Laws in case of Individual as well as Company tax payer. So keep the hard copies/soft copies of the bills like hosting charges, marketing charges like SEO, domain renewal charges etc.

    2. If you are employed person, disclosing your offline income to your employer then your TDS on salary income will be high but may save your from paying advance tax or penalty etc. However right decision will differ from case to case.

    3. Proper tax planning through investment under specified securities such as under Section 80-C, 80-D, 80-CCC will certainly help to save taxes as good investment etc. Please check relevant sections for detail info.

    Discussion with your tax consultant will help you better in the individual cases.

    Prashant Aier

  2. Great article,
    As I am in the UK it is slightly different, but the basics are the same. I find in the UK there is lots of help on .gov.uk sites and you can file everything online, which makes it a lot simpler than it used to be!

    Sam

  3. AWB :

    Income tax is a very important part of overall financial planning for bloggers and freelancers.

    There are quite a few options to minimize tax burden. For example, to avoid being hammered with a tax bill in April, save 10-15% of your monthly income and put it in a tax savings fund. The IRS recommends making estimated tax payments periodically throughout the year.

    Another technique is to invest in retirement instruments such as a self-employment IRA or a self-employment 401(k). By doing so, pre-tax income goes into the retirement plan thereby lowering taxable income and the tax bill. Deducting legitimate business expenses and claiming all the deductions and credits qualified instead of just some of them also helps lower tax due while building your business.

  4. Subodh :

    Ajith,
    I am also in highest tax bracket.
    Between the two options, what you would recommend:
    Option 1: having all earnings on wife’s name (wife not having a day job)
    Option 2: Registering a company on wife’s name and having all earnings on company’s name.

    My question is from tax perspective only and I also want to save on direct expenses as Prashant mentioned in his comment.

    • I would recommend Option 1 if your income from online businesses is NOT significantly high (i.e. below 5 or 6L) and you have a regular job. This is because that kind of amount will be exempt of taxes under your spouse name (or in worst case declare 8% of the income as profits by filing ITR-4). However, if your income is very high. having a registered business is better. Registered business requires certain mandatory declarations/filings (quarterly filings, detailed business returns filing on top of registering a business with address) to be made that costs some money. The positive side here is that, you can claim several related expenses (ISP, Hosting, Driver expenses, electricity costs etc) as business expenses. This info is as per my knowledge. Please consult a CA for the best possible option for your kind of business and income.

  5. Murali :

    Hi Ajith,
    Great blog!
    1. I was wondering if I can have all earnings on BOTH parents name (mom and dad so that I get higher tax savings). Is it allowed?
    2. Also by “name” you meant that send the income from freelancer’s site to his/ her bank account.
    All the above questions are w.r.t. individual income as my freelancer income is less than 1-2 lakhs.
    Thank you.

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