I've put together a list of resources. Check with your tax advisor if you have any questions. Please note I am not a professional accountant and I am not giving tax advice.
If you are a sole proprietor, you'll need to fill out a Schedule C with your taxes.
Remember to include ALL compensation - including products you were given in order to write a review (if you kept that product). If you were given a carpet cleaner from Bissell, tickets to a Yankee game which you attended, and a pound of Ghiradelli chocolate you'll need to claim it! But if you didn't keep it - you picked up the tickets but held a giveaway for them on your blog, for example, and the tickets merely passed through in the course of your business, you do not need to claim it as compensation. If you accepted the tickets, couldn't use them, and gave them to your sister, though - you have to claim it. (See, this is why you need to check with your accountant if you have questions!)
Common deductions might include: cost of hardware and software used exclusively for blogging, promoting online, etc.; hosting; domain name; design/graphics; postage and shipping if you mail items to readers from promotions and giveaways; postage if you send your readers notes, cards, etc. via snail mail; cost of conferences, webinars, ebooks, or regular books if used for training. So, if you bought an ebook on SEO, CSS for Dummies from Barnes and Noble, and went to BlogHer, those are deductible expenses.
If you've incorporated this year, the legal costs are deductible. If you are required to have a license or permit by your city, county, or state, the cost is deductible too. PayPal fees may be deductible.
Be careful- don't claim so many deductions that your blog business is unprofitable more than one year in a row!
From Blog to Business - what you need to know to stop treating your blog like a hobby.
Is it a hobby or a business? How the IRS classifies it.
John Chow on Blog Earnings and Income Tax
IRS guide to Business Expenses
101 Deductions from the incomparable Wisebread.
