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Affiliate marketing is indeed a profitable business. If you’re new to it, you may wonder if the commissions you’re earning from affiliate links are taxable. For example, before joining a personal loan affiliate program, such as LeadsMarket, you may need to learn what affiliate marketers pay in taxes and how to trace taxable income before you know about attaching affiliate links to your platform and using affiliate marketing templates.
This blog will discuss all these things and more so you can avoid getting in trouble with the IRS.
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Is Affiliate Marketing Taxable?
Just like any other profession, affiliate marketers pay taxes in the US. The only exception is if your earnings are less than $600. Once you’re past that mark, you must file taxes with the IRS, particularly Schedule C, at tax time.
Schedule C is a tax form filled out by single-member LLCs or sole proprietors to report loss or profit. Examples include freelancers, small business owners, or those who have a side gig. You can speak with your accountant if you’re still unsure what Schedule C is.
How to Trace Your Taxable Income
It’s easier to claim your income from affiliate marketing if you track your earnings as they come in. You can simply use a spreadsheet if you’re still starting and don’t have a massive income. However, once your affiliate marketing business starts to grow and you join multiple programs at once, you will need to use another program to track your income. For example, you can invest in accounting software like QuickBooks and FreshBooks that track your income and expenses.
What Taxes Do Affiliate Marketers Pay?
Affiliate marketers must pay the employee and employer parts of the Social Security and Medicare taxes, which come in a 15.3% self-employment tax. Sometimes, you must also make estimated affiliate marketing tax payments for state and federal income taxes to the IRS.
You’re also not required to pay sales taxes in the US if you’re an affiliate marketer since you’re technically not the one selling the products and services you’re marketing. It’s the company that sells the products that pay sales taxes. Additionally, you probably won’t be required to pay local taxes either.
Various countries have varied rules on affiliate marketing taxes. The tax rates can also vary, so we strongly advise that you consult a professional or accountant before starting affiliate marketing.
Tax Deductions for Affiliate Marketers
If you have any expenses that are related to your affiliate marketing business, they are considered expenses that should qualify as tax deductions. This includes labor costs associated with anyone who’s worked on your site, software subscriptions, and web hosting. You can write off utilities like heating, electricity, internet, and water if you operate from home. Moreover, if you use your cellphone to manage your affiliate marketing business, you can also include your phone bill as a tax deduction. However, you should proceed cautiously and ensure it’s legal by speaking with your accountant.
However, we should note that you can’t write off personal expenses, such as any item of clothing purchased for personal use and not sold on the site. Additionally, if you travel to conferences, that would not be counted as a business expense you can write off because it’s not directly related to product sales unless you can prove otherwise.
What If You Simply Don’t File Taxes?
Filing taxes for your affiliate marketing business can sound complicated, especially if you’re a beginner, and this may lead some people to neglect filing taxes. However, you should not be one of these people because even if you don’t file taxes, you’ll still owe them.
The IRS can seek you out and ask for the amount you owe plus fines. So, you’ll wind up paying the government a larger amount than if you had just responsibly filed your taxes in the first place.
Lastly, evading your taxes is a crime; if continually unsettled, you could go to jail.
