I am still confused though, I thought I could just treat the income I earned from blogging thru (PPP, etc.) as self-employed income and I don’t have to bother or worry reporting it since I only got below $400.

Which is which, treat it as self-employed income or HOBBY income? Enlighten me with this please…. THANKS!

Donation income is generally not subject to income tax because it is not income that is of a personal exertion nature or is from carrying on of a business.

Self-employment tax is the independent contractor’s version of FICA, meaning Social Security and Medicare withholding.

The bad news is, unlike work for an employer, you don’t split the tax between the employer and employee. Since you work for yourself, you’re both.

The good news is, since you have to pay both sides of the tax, you get a tax credit for doing so.

There is also some bad news. You may be subject to self-employment tax, if you made more than $400 your 1099-MISC. The current focus is on individuals, and not corporations or LLCs. Information for other business types and countries may be added later.

Now I just have to find out what the self-employment tax is?

Here is my current understanding of hobby vs. business as the IRS sees it. If you give the appearance of intending to profit (marketing, etc.) you can deduct to your heart’s content. The IRS generally expects you to make profit in three out of five years, though, but taking awhile to get in the black is understood. IF, however, this intention to profit is not clear then you do indeed get stuck with the label of ‘hobbyist’ and can’t deduct more than you make.

So get serious, make some money and deduct away. I know I am.

I also found some very interesting articles regarding product reviews. If you can show that reviewing products is part of your business then you can deduct a lot of purchases. If you then sell the product you subtract the income received, if you keep it you might need to subtract the ‘fair market value’ although some think this is optional.

Good news for the citizens of other countries :D as some countries waive the tax liability if you are working outside the country.

If you’re subject to US tax and living outside of the US, chances are that you’ll never actually pay US tax but you will likely have to file. I would recommend checking with a tax practitioner if you’re not sure.

Most countries (well, the ones that we like anyway – if you’re in a country that we’re annoyed with, you’re probably out of luck) have agreements with the US either by treaty or by rule that allow you to exempt out of paying (but not filing) the tax if you’re paying tax in your country of residence.

Since there’s so much interest in this topic, I’m going to do a follow-up post on http://www.taxgirl.com – and I’ll talk to Darren about possibly linking it.