As an experienced affiliate advertiser, you’re used to following
rules. You need to follow the rules established by your search and
content networks, your affiliate networks, and your advertisers.
It’s not a great leap to observing the rules and procedures set
forth by the IRS and by your state and local municipality.
Obtaining a Business License
Before you set up your home office and start working out of your
home, you should check to make certain that you aren’t violating the law by doing so. Some municipalities prohibit businesses
from being run in residential areas.
In truth, it’s difficult to deduct
business activity of the sort discussed in this article, which mostly
involves sitting at your computer for periods of time. But I’m not
going to tell you to break the law, either. You should, at the very
least, know what regulations you need to comply with. Some
local regulations cover the following:
• Business taxes. Some cities tax businesses for the use of
things like office furniture and computer equipment.
• Business name. If your company’s name is different from
your own name, you may be required to submit a Doing
Business As (DBA) certificate that identifies you as the
owner. You might even be required to publish a notice in
your local newspaper stating that you have submitted this
certificate. Visit or call your city or county clerk’s office to
find out more.
• Business license. Some states or local governments may
require you to obtain a business license. Visit or call your
city or county clerk’s office to find out more.
Obtaining Identification Numbers
You need an ID number when you obtain a driver’s license. You
also need some kind of identification number when you run your own business. The good news is you probably already have one
of the required numbers. The IRS requires you to have a Taxpayer
Identification Number (TIN). A TIN can be one of the following:
• A social security number
• An Employer Identification Number (EIN)
• An Individual Taxpayer Identification Number (ITIN)
You might also need a state tax ID number; check with your
individual state’s department of revenue (if you have one) to find
out how to do this. A tax ID number is important if you plan to
sell tangible goods and you need to buy them for resale: Your
supplier might ask you for one. Since you’re an affiliate marketer,
however, a tax ID number is of secondary importance.
TAXES AND ACCOUNTING
If you are a self-employed individual and you have annual
earnings of $400 or more, you are subject to the self-employment
tax. You are also required to fill out several different tax forms
with which you may be unfamiliar. These include the following:
• Schedule SE to Form 1040
• Schedule C or C-EZ, on which you report income and
expenses
• Form 1040-ES, on which you estimate and pay your selfemployment
tax
Filling out all these forms is something you can definitely
handle on your own if you have the time and some aptitude for
math (and if you are successful at affiliate advertising, you probably
do).
But just because you can do it yourself doesn’t mean that
you should. I strongly recommend hiring an accountant to do your taxes, at least for the first year, so you can be sure this task is
done right. Even if you have one of those high-tech electronic
tax preparation programs available, you probably won’t do
things in the same way as a professional. You should strongly
consider hiring a tax expert to help you when you start filing
self-employment taxes.
You probably won’t have to hire an accountant immediately.
If you use computer software to keep your books, you can handle
your own record keeping. I didn’t hire an accountant until after I
had two very successful years in my business.
Paying Quarterly Taxes
One of the biggest practical changes I had to make when I quit
my day job and started working at home involved taxes. Instead
of having my employer withhold taxes from each of my paychecks
during the year, I have to pay taxes on a quarterly basis. I
estimate the amount of tax I am going to have to pay at tax time
and divide that by four; the result is a quarterly payment I send
the IRS and my state tax agency. This is just one of the general
practices all self-employed businesspeople encounter: When it
comes to taxes, it pays to plan ahead rather than doing things at
the last minute.
This is where a professional tax expert can come in handy:
This person can estimate the amount you need to pay each quarter
and provide you with the forms you need to do it. If you are
still a do-it-yourselfer when it comes to taxes, you can get the
forms from the IRS and your state tax agency.
TIP: The IRS puts out a publication called Tax Withholding and Estimated
Tax (Publication 505) that will provide you with basic information
about paying your estimated taxes on a quarterly basis. You can
access it online at irs.gov/pub/irs-pdf/p505.pdf.
Keeping Good Financial Records
You don’t need to be a professional bookkeeper to keep the sort of
financial records that will help you get all the deductions you
need at tax time.
When you start reading instructions about different
types of bookkeeping or accounting methods, you start
hearing about terms like cash basis accounting and accrual-basis
accounting.
It all boils down to recording your income from purchases,
your expenses (for the most part, your clicks), and any
expenses you have for equipment and housing related to your
business (e.g., utilities). Using an accounting software program
like Quicken or QuickBooks should make the process easier.
In most businesses, you’ll encounter expenses when you purchase
merchandise in order to resell it. In the case of affiliate
advertising, you aren’t reselling, exactly, but you do have to pay
for a lot of clicks in order to earn a fee from a purchase. Google’s
AdWords, MSN’s adCenter, and other search and content providers
do keep records of what you have been charged for clicks.
Take advantage of these records to double-check your own figures
for advertising expenses.
TIP: For my own part, I print out a quarterly income/expense report
generated by QuickBooks (I used to use Quicken) so I can calculate
my quarterly estimated income tax payments.
Before I incorporated my own business, I used the popular
personal finance software called Quicken to track income and
expenses. Since incorporating, I moved to a more businessoriented
software program, QuickBooks.
TIP: Both Quicken and QuickBooks are available on the Web. You can
find out more about Quicken at quicken.intuit.com. QuickBooks's home page is at quickbooks.intuit.com. QuickBooks gives you
two options for how to use its software: You can download or purchase
the program and install it on your computer; or you can visit the Quick-
Books online web site (oe.quickbooks.com) and sign up to use
the program on the Web. That way, you can access your data from any
computer connected to the Internet.
| 
Disclaimer