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This is based in United States. I have Ad revenue that I pay taxes on as Misc income on a schedule C. I also do freelance web development for a hourly rate, and hold a W2 job.

The question: If I work 1000 hours a year on my website and I make $5,000 that year in Ad Revenue, is all of that taxable? Because technically that's below minimum wage. The web development is mostly a hobby, but I know I have to report the ad revenue. Paying taxes on $5,000 when I already made nothing on my time is a kick in the face.

My freelancing pays a good hourly rate and I report that via a 1099. Is there anyway that I can pay myself for the website so that I reduce my tax liability? Would my freelancing rate that clients pay be a justifiable rate to myself if this is even possible? Does the US government really put me in a position of paying 1/3 of my ad revenue in taxes on a below min-wage rate?

Thanks!

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    What makes you think that minimum wage is not taxable? – littleadv Mar 29 '15 at 0:55
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I'm not a tax advisor, but I've done freelance work, so...

If any of your side-business revenue is reported on a 1099, you're now a business owner, which is why Schedule C must be filled out. As a business owner, minimum wage doesn't apply to you. All revenue is income to you, and you owe taxes on the profit, after subtracting legitimate (verifiable) business expenses. You'll want to talk to a real tax advisor if you're going to start expensing mileage, part of your house (if you use a home office), etc.

Don't forget that you'll owe self-employment tax (the employer's half of your payroll tax).

You can't save money on business taxes by paying yourself a wage and then counting it as an expense to the business. You'll definitely want to talk to a tax expert if you start playing around with finances as an (the) owner of the business.

Income that is not reported on a 1099 should be reported as hobby income.

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If the $5000 is income, then you need to pay income taxes on it. That's simply the way it works. Hourly rate has nothing to do with whether or not you pay taxes.

If it helps, try to think of the $5000 as the first $5000 you make for the year. Now it's covered by your standard deduction and you're not paying taxes on it.

  • There is no way to deduct expenses on it (my time) at any rate? – ThePaul Mar 28 '15 at 21:41
  • No. You don't get to deduct your time. Only expenses you can document. – JoeTaxpayer Mar 28 '15 at 22:00
  • @ThePaul your time is not an expense. Expense is something you pay for. – littleadv Mar 29 '15 at 0:55
  • @ThePaul: The thing is that spending 1000 hours to get $5000 is not a financially prudent move. If you're putting the in the hours because you expect the business to grow later, then you're investing your time for future profits. If you're putting in the time because you enjoy it, maybe you're okay with not making that much money because you do it for the gusto. But you can't expect to get a tax break just because you put in more time than it's worth to earn that $5000. If you don't think it's worth it, then don't spend that much time on it. – BrenBarn Mar 29 '15 at 7:54

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