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  1. #1
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    January 19th, 2007
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    1099 Form and PPC Question?
    Anyone know if it is complicated to deduct Pay Per Click costs from your 1099 earnings? When I first started 50% of my commission went to PPC. I shouldn't have to pay taxes on that right?

    Thanks in Advance,
    Chris

  2. #2
    ABW Ambassador
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    Business income and expenses are reported on Form 1040 C. Tax forms and instructions are available at http://www.irs.gov

  3. #3
    ABW Ambassador Nature Boy's Avatar
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    I include PPC costs as "advertising" expense on the 1040, Schedule C (Profit or Loss From Business)
    Scott
    If you can't dazzle them with brilliance, then baffle them with bulls#!t
    Don't tell me that you'll do it... SHOW ME.
    Just because everyone else is drinking it is no reason for me to drink the KOOL-AID.

  4. #4
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    Thanks Very Much, Set My Mind at eaze. I have to pay taxes on my unemployment also this year. Almost had a heart attack when I realized I was getting a 1099 also.

  5. #5
    Verbosely Virtuous Mutt spacedog's Avatar
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    This brings up a good question about PPC and advertising costs. I've always assumed that putting my entire PPC expenses into the Schedule C advertising costs field in my taxes is fine. Does anyone know if there are any restrictions on this by the IRS? It would be rather odd to take in, say, $50,000 on your 1099 forms from LS, SAS, CJ, etc, and have paid $49,999 in PPC costs to therefore have a net profit of $1 (not considering other Schedule C expenses). Might get the IRS' red flags raised for a possible audit.

    Anyway, ALL advertising costs by any USA business (including self-employed sole proprietors) can be deducted dollar-for-dollar from their income earned, correct? Even if it results in a net loss.

  6. #6
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    As you note, PPC expenses are simply "advertising" expenses to be included on Schedule C, and of course there are some businesses which overspend on advertising and end up with zero or negative net income as a result.

    If I remember right, there is a "2 out of 5" or "3 out of 5" rule, where the IRS is likely to classify a money-losing business as a "hobby" and reject any future deductions for business losses for that business. You can probably track that down by searching for "hobby" at the irs.gov web site.

    The IRS has software that identifies "unusual" and "suspicious" deductions and ratios based on business category; depending on the business category you choose, certain deductions might appear unusual or suspicious to the IRS software. (There are certain expenses which are "highly suspect," including deductions for a "home office.")

    Keep in mind that certain expenses will be "highly suspicious" for some businesses, but not for others. A dry cleaner would probably have huge deductions for chemicals and toxic-waste disposal, but a law firm seeking the same deduction would seem odd. Thousands of dollars for "bicycle repair" expenses would look suspicious on a Schedule C for your Avon or Mary Kay business, but not for a bike messenger.

    An example: I have been audited once in my life, for the year when I first opened my private law practice (1993). During the first five months of that year, I earned X thousand dollars as salary while working at a lawfirm; then I "went solo" and opened my own office, and (like most first-year businesses) I lost a bunch of money (more than X thousand dollars) during my first seven months (including expenses for advertising). The IRS limits business-loss deductions to the amount of "active income," so that my allowable Schedule C expenses were EXACTLY the amount of my salary income (the rest of the expenses were "rolled over" to be deducted in the next tax year), and my reportable net income was exactly zero. Of course, having a business appear to lose EXACTLY the "right" amount of income looked suspicious to the IRS computer, so I was selected for audit. When I went for the audit, I showed the examiner how the "loss limit" had triggered the zero-income situation, and then she just asked me for some random receipts from various categories and sent me on my way.

  7. #7
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    January 12th, 2007
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    If I play online poker every hand I lose is a loss the ones I win would be income. PPC is like poker, you never know if you'll win that hand or not.

    Seriously though, one expensive lesson I learned long ago is to spend the $$$ to consult a tax expert. Now is a bad time of the year to consult one. There are many seasonal "experts" this time of year. The best time to review your taxes with someone is Q3. That way you still have time to make adjustments before the end of the year.

    I decided not to be an accountant long ago. The few hundred I spend every month has paid off ten-fold over the years. In money saved as well as time saved.

    Note: There is a difference between an accountant and a tax expert. A good accountant will consult a tax expert for you.

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