Ask The Taxgirl: When Is Blogging Income Earned?

Taxpayer asks:

Thanks taxgirl for helping me out on this one! I have a couple of different ad and affiliate accounts for my blog. When I earn money, they bank it until I hit a certain dollar amount and then they make a deposit into my PayPal account. A few of them accumulated earnings in late 2009 but did not hit my PayPal account until 2010. Do I report those earnings when I earned them or when they were deposited?

Taxgirl says:

That’s a great question!

Most individual taxpayers are cash-based taxpayers. This means, generally, that you report income when received and expenses when paid. “Received” can be a tricky concept in today’s internet world since it’s not a simple matter of cutting a paycheck. Clearly, if someone gives you a check and you have the check in hand, it’s received. But if the same check is put in your in-bin at work and you choose not to cash it, it’s still income to you. The general rule is that it’s income when it’s made available to you – and that extends to third-party payers or internet payments.

I know exactly the situation you’re describing. I have the same arrangement through a syndication service. I get paid when my “royalties” hit a certain amount; my Kindle subscriptions work the same way. That money isn’t income until you can actually take it. If you “earn” $20 but have no right to receive it until you reach $25, then the income has not been made available to you. It’s not actually available to you until it’s deposited to your PayPal account.

There is a caveat: if the fact that the income wasn’t available was due to something you did (i.e. you made a deal that you didn’t want to be paid until you made $100), then it’s actually available when you could have taken it – even if you didn’t. You can’t simply defer income because it’s convenient for you or because you don’t want to pay tax on it.