How to ensure your ClickBank earnings are reported to the IRS
ClickBank is an online marketplace that lets anyone sell digital products like e-books, videos, and software. If you’ve ever used ClickBank to sell a product, you may have noticed it doesn’t give you the option to report earnings as business income.
That means if your business isn’t registered as an LLC or corporation but instead operates as a sole proprietor, you need to take additional steps after you file your taxes.
If you use ClickBank in your business, the IRS considers those earnings personal income. As a result, there are special rules for reporting your ClickBank earnings on your taxes. Failure to report those earnings correctly can have serious long-term consequences. Read on to learn more about how to ensure your ClickBank earnings are reported correctly on your taxes.
The Basics of ClickBank Reporting
When you sell products via ClickBank, the company will report your earnings to the IRS as miscellaneous income. You will have to report those earnings on your taxes, of course, but the rules for doing so are different for sole proprietors than for other types of business owners.
As a sole proprietor, your ClickBank earnings are personal income. For example, if you sell a $100 product via ClickBank, you’re responsible for reporting $100 of income. That’s a significant difference from business income, where you report the profit of your business rather than the amount of money you received personally.
Record your ClickBank earnings as personal income
When you report your ClickBank income, make sure to list it as “miscellaneous” and indicate “clickbank” in the description field. Your ClickBank income should be included in the “other” income category on your 1040 tax form.
And while you don’t have to itemize that income, it’s a good idea to write “clickbank” on your 1040 form to help you remember to report it. This will ensure that your ClickBank earnings are accurately reported on your taxes.
How to report ClickBank income on your taxes
Now that you’ve recorded your ClickBank income as personal income, how do you report it on your taxes? The easiest way to do so is to create a Schedule C form and include it with your 1040 tax form. If you also run a side hustle or other side business, you can also include those numbers on this single form. The Schedule C form looks like this:
Keep in mind that the IRS requires sole proprietors to report all their business income and expenses on this form. This means you will have to report your ClickBank earnings on this form along with any other business income and expenses you have.
You can use this form to record the total amount of money you made from your business — including your ClickBank earnings — and the cost of running your business, such as your web hosting fees. You can report this information online as part of the 1040 EZ form or via the Schedule C form.
What happens if you don’t report your ClickBank earnings correctly?
If you fail to report your ClickBank earnings correctly, you will face both short-term and long-term consequences. In the short term, it’s likely that you’ll face an audit. The IRS audits approximately 1% of sole proprietor tax returns each year, so failing to report your ClickBank earnings correctly won’t necessarily land you under the microscope.
However, if you do get audited, you’ll face an in-person audit that can be stressful and time-consuming.
In the long term, failing to report your ClickBank earnings correctly can lead to serious consequences. For example, failing to report your ClickBank earnings correctly could result in a higher tax bill or even penalties.
You could even face criminal penalties for willfully failing to report your ClickBank earnings correctly. The potential consequences of failing to report your ClickBank earnings correctly are serious, and there’s no reason to put yourself at risk.
As a sole proprietor, it’s crucial to stay informed about tax laws and changes to those laws. For example, the Tax Cuts and Jobs Act changed the way sole proprietors report taxes. The most significant change is the elimination of the Schedule C-EZ form.
We recommend checking out the IRS publications that discuss these changes, especially Publication 35, Tax Guide for Small Businesses, which includes information about ClickBank reporting. Stay informed about tax law changes and how they affect your business to ensure you don’t run into issues with the IRS.
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