There’s some discussion going on about Philadelphia requiring a blogger to get a business license, despite that she has earned only $50 over the past few years. It’s triggered a lot of discussion about when a blog is a business and when it’s not.
My opinion isn’t all that popular with some people. If you’re trying to earn money with your blog, you’re trying to run a business. Whether or not you’re making a profit has nothing to do with it. Brick and mortar businesses have to pay for a license no matter their profit, and they have larger expenses than most online businesses; there’s no reason to exempt online businesses that aren’t earning a profit.
That said, I think it would be more reasonable for cities to only require a license once you’re earning a certain amount per year. A business earning as little as Bess is earning off her blog could easily be called a hobby by the IRS.
It’s hard to earn money by running a blog. The people who earn big money off their blogs are the exception.
If you’re running ads on your blog, of course you’re trying to make it into a business. You’re trying to earn money after all. But just as most businesses fail in the first few years in the brick and mortar world, most blogs won’t earn significant money in their first years, quite likely ever.
Doesn’t mean you aren’t running a business, just that you aren’t succeeding at earning much money at it.
I don’t necessarily agree that a business license should be required when earnings are so low, but most places would call it one. I’d like to see some limitations on that, but it isn’t the case in every city. Some do limit when they tax businesses, but you may still need the license.
If you’re concerned about your personal blog being considered a business, don’t monetize it until you think it will make money. That means build your readership up first. Leave off the ads and other sources of income from a blog and no one will regard it as a business. Yet you can easily turn it into one when you believe your traffic justifies adding in ads.
Many communities have hefty fines for those who do not properly license their business. Home businesses of all sorts easily fall through the cracks, but strictly speaking home businesses in most areas are required to get a license. These rules are neither unreasonable nor new. It’s just that cities are noticing online businesses more.
Where Is Your Business Located?
Some people argue that their business isn’t really located at their home. They feel it’s more where their server is. They try to use that as a reason why they shouldn’t have to get a business license in their location.
I very much doubt that is the case. I also don’t think you would want it to be the case. You’d have to deal with licensing your business where your server is, which is not always possible to do online.
Your physical presence has much more to do with where your business is located. You do the work of creating your blog where you are. Even if you blog a lot at the local coffee shop, you’ll want to call your home the location of your business.
When Is It a Hobby?
The IRS gives these criteria for considering whether you have a business or a hobby:
- Does the time and effort put into the activity indicate an intention to make a profit?
- Do you depend on income from the activity?
- If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
- Have you changed methods of operation to improve profitability?
- Do you have the knowledge needed to carry on the activity as a successful business?
- Have you made a profit in similar activities in the past?
- Does the activity make a profit in some years?
- Do you expect to make a profit in the future from the appreciation of assets used in the activity?
My own, unprofessional assessment would call Bess’ blog a hobby, if only because there’s no way she depends on the income from it. If she’s expecting to make a better profit in some years, my assessment could be wrong. I’m not her and I’m not a tax professional, so I can only take my best guess.
If she can convince the right folks in Philadelphia that it’s a hobby by IRS criteria, Bess has a good chance of not having to pay the license fee. Only trouble is that the ads show the blog is trying to earn money. All too easy to say that makes it a business.
On the plus side of calling it a business is that you can deduct expenses, which you generally can’t do for a hobby. Just be sure that you’re doing it well enough that the IRS doesn’t check things over in a few years and decide that it’s a hobby because it has never been profitable.
Where Would I Draw the Line?
If it were up to me, I would love to see business licenses required once a business is bringing in a certain amount per month. That would encourage people to start a business. They could even say it’s before deductions or expenses so that businesses can’t just claim they don’t have any income. Beneath that level, let the city consider it a hobby that earns money.
If the business involves health or safety, other licensing right from the start makes sense.
Requiring a business license right from the start is discouraging to new businesses. It’s an expense, and if you want to have a business you’re going to have expenses, but anything that makes it easier for businesses to start will encourage people to try starting one.
But even if you do have to pay for a business license and hosting in the early days of your blog or other online business, remember you have it easy. Brick and mortar businesses have to deal with far higher expenses to get started, and yet people start them all the time. Much as we might like special treatment, there’s nothing special about any sort of online business that deserves different treatment from the brick and mortar variety.
If you don’t have a business license or home occupation permit for your online business, check with your city to see if you need one. Most places they’re pretty reasonable. Rules vary from place to place, so I can’t give you any more specific help than that to see if you need one.
If you’re in doubt, ask for help from a professional. SCORE is a good general resource for business, and you can contact your city hall if you have questions about licensing requirements. You should be able to check their website and figure out if you’re likely to need anything for your online business.