How To Claim Adsense Revenue on Taxes?

February 27, 2007 6:10 PM

Full-time job = salary = W-2 form = income to report on federal taxes. So far, so good. But I also made a few dollars (~$1,000) in 2006 from ads on my websites (some Adsense, some others). No documentation for the income, other than deposit receipts into my bank account. How do I include this modest sum in my annual income?

Do I simply add the $1K to my salary income? Even if - especially if - there's no official "W-2" form to validate it? Could it really be that simple, or is there something more to claiming this income?

posted by davidmsc to Work & Money (9 answers total)

You'd be better claiming it as self-employment and writing off all your expenses against it.
posted by acoutu at 6:16 PM on February 27, 2007

You should probably file a Schedule C or Schedule C-EZ. Read the fine print, and call (800)TAX-1040 if something still seems not quite right.
posted by Kwantsar at 6:27 PM on February 27, 2007

Generally, you can run a report on AdSense that will tell you how much you made in a calendar year. Use that amount as self employment. Find out if it's to your advantage to file a Schedule C and itemize your deductions. Make sure you have receipts, either in the forms of emailed invoices from your web host, or other invoices/receipts to equal the deductions you take in case you get audited. Also print out that adsense report.

You don't have to provide proof, per say, of self-employment income with your tax return the way you need to mail in W-2 forms; however, you do need to be able to walk your walk in case the IRS audits you a few years down the road.

Note: I am not an accountant, and I've screwed up enough over the years that you should probably consult one.
posted by SpecialK at 6:28 PM on February 27, 2007

You need to file Schedule C-EZ (Net Profit from Business). The top of that form has instructions that say what conditions would require the more complicated C instead of C-EZ, but most likely you can use C-EZ in your situation.

Since your self-employment income is more than $400 for the year, you also need to file Schedule SE (Self Employment Tax).
posted by clarissajoy at 6:38 PM on February 27, 2007

Also, if you file C-EZ you will have to use Form 1040 rather than 1040A or 1040-EZ.

But don't worry, the business income forms are pretty simple if you don't have inventory or employees. It will take you five minutes, max.
posted by clarissajoy at 6:45 PM on February 27, 2007

If you do not engage in your activity to make a profit, then you can include it on 1040 line 21 rather than as self-employment income, and avoid the self-employment taxes. You can still itemize and deduct hobby expenses, but only up to the amount of income you have.

Of course, the IRS has rules to decide whether you are engaging in the activity for profit.
posted by grouse at 6:53 PM on February 27, 2007

If you made more than $600 from Google, they would have sent you a 1099 that needs reporting. If not, you can probably ignore it.

Something like Turbotax.com is really good for stuff like this, Through a series of questions, you can setup the whole schedule C thing to handle your 1099s as a side business (and claim any computer purchases last year that helped you make the money as a deduction).
posted by mathowie at 8:17 PM on February 27, 2007

Response by poster: Wow -- thanks all for the great responses. AskMeFi, you've done it again!
posted by davidmsc at 9:10 PM on February 27, 2007

They are supposed to send you a 1099 for that much. Did that amount actually get deposited in calendar year 2006?
posted by smackfu at 6:55 PM on February 28, 2007