Putting out YouTube videos or Instagram posts is fun. But when you start earning money from them, the tax man wants his cut.
You’ve probably been building your social media following for years. For most people, it’s just a way to keep in touch with friends or acquaintances, even if you have thousands of friends and followers. But more and more people look at social as a way to build their personal brands, and their followers as potential for revenue. If your dream is finding a way to monetize your social feeds and become a fabled influencer, well, we can’t tell you how to make that happen. Becoming a social influencer isn’t easy. But we can tell you some bad news: when you start earning money from them, the tax man wants his cut.
Whether you’re still dreaming of being paid to post content, or you’re already earning money on social media, we’re here to tell you what you it all means for your taxes.
It Doesn’t Take Much Income to Owe Taxes
Unlike a traditional job, your social media income probably doesn’t include a W-2 or other formal paperwork (unless you’ve been hired as a contractor by a business, and they handed you paperwork). This means that it’s absolutely vital that you track your income and expenses related to social media, so you (or more likely, a good accountant) can let the government know exactly what you owe.
And don’t forget that items sent to you to review count as income. So if you’re a review blogger who gets to keep the things you review, make sure you keep the receipts as well!
You may be surprised to find out that it doesn’t take much for the IRS to want in on the action. Even if your social stream is making just a few hundred dollars, you’ll likely have to file a 1099-MISC form to report the income to Uncle Sam. As with any tax-related discussion, it’s best to ask your accountant about your specific situation. This post is just meant as a general guideline!
If your social stream is bringing you significant income—the kind you rely on to live your lifestyle—you’re likely going to have to consider it a business. In the eyes of the IRS, there are nine factors that determine the difference between a hobby and a business. We recommend checking out their list and seeing if your social stream is more significant than you might have thought.
That’s good news though. If you register as an LLC or sole-proprietor business, you’re entitled to a few tax breaks you wouldn’t otherwise get. It’s still vital to track all of the income you receive from your social media accounts, and all of the expenses you put out in order to keep growing your social media following.
How Can I Save on my Taxes?
Hobby expenses used to be deductible, but that all changed in 2018 when the new tax plan went into effect. Now, your best bet for getting a deduction on your taxes is to hope your social media income qualifies as a business (based on the nine factors linked to above).
If your social media income qualifies as a business, you can start deducting all sorts of expenses related to your social earnings.
If you have to travel to a location to promote a brand, that’s a deductible expense. Need a new webcam for streaming? Deduction. Your internet bill, phone plan, web hosting expenses, and other items necessary to your “daily operation” could all be deductible as well. Using a money-tracking service like Mint, where you can categorize expenses, is a convenient way to help yourself keep track of all this.
You’ll also likely want to report your taxes quarterly, unless you have a W-2 statement and are having taxes withheld from each paycheck. But if you’re like most freelancers or independent contractors, your money is coming in tax-free and you’re responsible for setting aside any amount you may owe. And if you owe more than $1,000 annually, you could face some penalties from the government. That may sound scary, but it’s the sort of thing your accountant should be able to help you with pretty easily.
In fact, meeting with an accountant is the best way to plan for dealing with any income from your existing, or impending, internet fame. So get in touch with an expert, and start your personalized plan today!