Alright, I am almost done with our 2016 taxes! I just need to double check everything and it’ll be ready to go. Good thing our taxes were relatively simple last year. The rentals were occupied the whole year and that made the rental portion very easy. I also sold a few stocks to take profit and offset some gains. There was one stock sale that I had to dig up the purchasing price for from 2005. This one was a speculative solar panel company that my friend was working with as a venture capitalist. Needless to say, I had a 90% loss on that “investment.” At least I could use the loss to offset the gains from my more profitable investments this year. Anyway, the only thing really complicated about our 2016 taxes was my blog income. I logged all the income and expenses in my spreadsheet every month, but I still had to make sure they match up against the 1099 statements from various companies. I got it done to the best of my ability and you can take a peek into my 2016 blog income today.
First, let me share a few highlights from our taxes.
- We stayed under the 15% federal income tax bracket and did not have to pay any taxes on our dividend income. In 2016, we made $10,800 from our dividend portfolio. I love not having to pay tax!
- Retire by 40 generated about $29,500 last year and I put $22,500 into my individual 401k.
- I did not take a home office deduction although 90% of my work was done at home. This is because my office doubles as RB40Jr’s bedroom. You can only take the home office deduction if it is exclusively used for business.
- We’ll get $650 refund. Yes!
- This one is actually a low light. My blog income was the lowest since 2012, the year I quit working full time. The advertising environment was changing and it took me a long time to adapt.
Blog income history
Here is the whole history of my blog income. I started Retire by 40 in 2010 to help me focus on my early retirement journey. At first, I was hoping to make a little income, but I never imagined Retire by 40 would help our finances this much. It’s pretty amazing that a simple blog generated over $200,000 in revenue over these last 6 years. Yes, everyone should have a blog. Here is my guide on How to Start a Blog and Why You Should.
My original early retirement plan in 2010 was to live on Mrs. RB40’s income, our passive income, and about $500/month of online income. Back then, we thought Mrs. RB40 would continue to work until she’s around 55. At the time, she recently started a new job and she preferred working than retiring. Now, she’s a bit older and she has seen the benefit of early retirement. My quality of life is a lot better after I retired in 2012 and she wants a piece of it, too. Well, mainly she wants more time to pursue her interests. She likes work, but she just doesn’t have time to do other things that she wants.
Our current plan is for Mrs. RB40 to retire around 2020. Our passive income should be in a better shape by then. We’ll also depend more on my blog income. We’d probably need around $1,500/month so we don’t have to draw down our retirement accounts. Drawing down is fine if it comes to that. It’d still be much less than the 4% safe withdrawal rate.
2016 Blog Income
Okay, here are the details of my blog income last year.
- Total Revenue: $37,869
- Expenses: $8,453
- Net Income: $29,416
The 2016 net income decreased almost $7,000 from the previous year. This is due to lower revenue and higher expenses, not good.
Retire by 40 generates revenue exclusively through advertisement. There are many ways to make money online, but I’m just not ready to branch out yet. More ambitious bloggers use their blogs as platforms to launch careers such as freelance writing, motivational speaking, consulting, and personal finance coaching. I’m not quite ready to do those things yet because I’m a bit lazy in my early retirement. If I was more driven, I’d do more to diversify my online income. After Mrs. RB40 retires, I might try financial coaching because I’d have more time. We’ll see how we both feel in 2020.
Here is how we made money through advertisement.
- Banner ads: $11,261. These are the banners you see on the sidebar and in the content. I like these ads because the readers don’t have to click on them. In a sense, these are like the ads on TV. Unfortunately, the pay rate from banner ads has been declining over the last 2 years. In 2016, I changed ad networks 4 times until I found one that worked well for us, AdThrive. This year should be a bit better for us in this category.
- Click ads: $1,566. These are the banner ads that readers need to click on. In 2016, I used ads from Google, Yahoo, and Amazon. We receive a few cents every time someone clicked on these ads. The payout from these ads has really cratered over the last 2 years. In 2014, we made about $10,000 from the click ads. They just don’t work anymore as consumers adapted to them. This year, I’m trying a new ad network (MyFinance) and they seem to be working better so far. Hopefully, we’ll make around $5,000 in this category this year.
- Affiliate: $17,714. Our affiliate income dropped a bit last year, too. These are the links you see sometimes in a blog post. We receive a referral fee when readers sign up for services through these affiliate links. This year I’m focusing on affiliate income and I’ve added affiliate links to almost every post I published so far (you’ve probably noticed this). I’m also working with more companies this year so we’ll be more diversified. In the last few years, most of the income in this category was from Personal Capital.
- Brand ambassador: $8,099. Occasionally, we work with companies to build brand awareness. This usually means publishing an article to highlight their products or companies. It’s really tough to make these posts interesting and useful so I’m cutting way back on this one. Google also doesn’t like this kind of thing because they say we are manipulating their search algorithm. Our income will drop to almost zero here and I hope to make it up with the other categories.
Our expenses were quite high in 2016. You’ll see why in a second…
- Advertising: $588. This is mostly for the email marketing company.
- Travel: $3,962. Here is why our expenses were so high last year. We went on a retirement research trip and also attended FinCon.
- Commission: $216. PayPal fee and such.
- Contracts: $890. This is for our freelance writer, Pinterest manager, and a few other contracts.
- Insurance: $190
- Meals: $989. We could deduct 50% of the business meals.
- Others: $101. Blog software and plugins.
- Internet: $797
- Phone: $431
- Hosting: $688
- PO box: $86
Overall, the expenses weren’t too bad. This year should be much better because we won’t have an expensive business trip.
2016 Net Income: $29,416
My blog income wasn’t bad in 2016, but it wasn’t that great either. The advertising environment was evolving and I didn’t react quickly enough. That’s okay, though. My main focus was to be a stay-at-home-dad until our kid starts school. Now that RB40Jr is in kindergarten, I’ll have more time to work on Retire by 40. This year I’ll focus on generating revenue so the bottom line should be much better. In fact, our blog income has improved markedly since the beginning of this year. 2017 might even be our best year yet. The year is still young so we’ll see if we can continue at this pace.
So what are you waiting for? If you don’t have a blog yet, you really should start one. It’s a great way to build your brand and explore different ways to make money online. You can get started in just a few minutes by signing up with SiteGround (example of an affiliate link), one of the top three hosting companies currently. See my tutorial on how to start a blog if you need a little help.
Okay, that’s it for today. I’m really glad I’m almost done with taxes, though. It’s kind of fun, but it just takes so much time to go over all the accounting over and over again. Did you finish your taxes?
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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