Taxpayer asks:
Hi Taxgirl,
Hi, I’m a blogger and had a question about advertising income and taxes. I read your guest post on ProBlogger about deductible items for bloggers and am finding it VERY useful!
My question is this — I belong to a few advertising network who charge advertisers to run ads on my site. I get the lion’s share of the money the advertiser pays, but a commission is withheld by the advertising network itself.
Is this commission considered an expense, and I “earned” the full amount that the advertiser paid? Or is the commission and “payment processing fee” something that happens behind the curtain — meaning the only income I recognize is the amount of the check that I get in the mail?
Taxgirl says:
Hey, thanks for reading (for those of you who are interested, the Problogger article is here).
Your question is kind of tricky because I am not 100% sure as to your specific arrangement. It sounds like you have an arrangement with an advertising network and not specific advertisers. The advertisers have an arrangement with the network. And deals are made at that level and you get paid out of that pot. Right? If that’s the case, it’s kind of like having artwork at a gallery. The gallery gets paid a share and you get the remainder.
Generally, you are taxed on income either when it is received or when you could have received it (yes, some people choose not to take it, go figure). In your case, as with the artist in my example, you never actually receive the money and you never otherwise exercise control over the money.
Let me be clear: it’s not about who handles the money. It’s about who has control. If you are able to control the money – even if you have an arrangement with an agent or someone to take a cut – the entirety of the proceeds would be taxable to you as income. Amounts paid out for commissions, etc., would be considered expenses.
But if you are last on the food chain, meaning that arrangements are made over which you have no control, your income is the amount payable to you. I am assuming that the check is made payable to you from the advertising network and that the network, and not the advertiser, will issue you a 1099 for the amount payable to you.
I hope that helps somewhat – if my understanding of your arrangement isn’t spot on, let me hear about it.
Other thoughts, comments (and questions!) on this topic – from taxpayers and tax professionals – are definitely appreciated!
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
