Social media influencers have become a vital part of the online world, and with the increasing popularity of this profession comes growing responsibility for those who practice it. One such responsibility is filing taxes.
Social media influencers must be aware of the tax rules associated with their earnings and the necessary steps to ensure they comply with all relevant tax rules.
Social media influencers are considered to have self-employment income; therefore, they are responsible for paying self-employment taxes (SE tax) on their earnings. This means they need to keep accurate records of their income and expenses and report their earnings accurately on their tax return.
Influencers should also be aware of the tax obligations in the countries where they have followers and earn income, especially before the tax season.
Some countries have specific self-employment tax regulations for online earners, and influencers must research and understand these rules to avoid penalties or fines.
You might be curious about how influencers make money. Many people with a lot of influence get paid for each project they do. They might get paid per blog post, video, or social media post. But they get paid for their work in more ways than just money.
Influencers may get free products or services if they tell their followers about a brand. When this happens, the person with a lot of influence still has to pay self-employment taxes on the value of the free product or service. Most of the time, gifts given as payment are counted as income by the government.
Since most influencers work on multiple projects each year and have different ways to make money, it's in their best interest to keep their finances in order. If they do, tracking how much money they make each year for self-employment tax purposes can be more accessible.
Most likely, the most influential people have enough money to hire a team of experts to help them. Personal assistants, lawyers, and financial planners may be on their team.
Independent contractors often get 1099-NEC forms when they get $600 or more in non-employee compensation from brands they work with or platforms like YouTube and Instagram, where they post their work.
Also, 1099-K forms may be sent to independent contractors who receive $600 or more through third-party payment apps like PayPal and Cash App.
Even though the independent contractor may not get official self-employment tax forms for payments of less than $600, all income should be reported and considered taxable.
Here are some relevant questions we have picked and tried to provide answers:
Yes, YouTubers have to pay income tax on their earnings from the platform. They are considered self-employed individuals responsible for reporting their income and paying taxes. The amount of tax they have to pay depends on various factors, such as the country they reside in, their total earnings, and any applicable tax deductions.
YouTubers always have to pay income taxes on what they earn through the platform, whether creating content as a business or a hobby. If they do run their channel as a business, they'll also have to pay self-employment taxes on top of that. Paul Koullick, the founder and CEO of Keeper, has written on tax topics for many renowned organizations.
Yes, Instagram influencers do get taxed on their earnings. That includes payment in kind. If they get paid in merch instead of cash, they get taxed on the fair market value of that merchandise, Mr.Koullick says.
There are a couple of ways people with social media income might be taxed, whether creating content as part of a business model or as a hobby that brings in a little pocket change.
If you run your monetized social media account as a hobby, you'll have to pay income taxes on it. That can be a small amount of hobby income from TikTok or Instagram on top of the revenue from your day job, pushing you into a higher marginal tax bracket.
“If you treat your account as a business, you'll have to pay self-employment taxes on top of your income taxes. Self-employment taxes are how business owners like career influencers pay their FICA tax obligation, which helps fund Medicare and Social Security.
Everybody who works pays FICA taxes — even people with 9-to-5s. But if you have a day job, your employer will take 7.65% out of your paycheck for FICA taxes and match another 7.65%, for a total of 15.3%.
On the other hand, self-employed people like influencers must pay 15.3% themselves. They're paying both the employee and employer portions of the tax. Luckily, though, they only pay taxes on their profit — which means they get to subtract any expense from their taxable income, " Paul Koullick, who has written on tax topics for Startup Nation, Freelancer Union, and Tweak Your Business.
Unlike bloggers and influencers who create content as a hobby, people who treat range creation as business expenses get to write off what they spend to keep their accounts running.
There is some other tax return they get as self-employed people. For instance, they can claim the Qualified Business Income (QBI) Deduction, which lets them deduct up to 20% of their earnings regarding income taxes.
Creators and influencers can deduct expenses like computers, office supplies, advertising, domain and hosting fees, and insurance premiums. For items like computers and cell phones used for work and play, you can deduct only the portion of the cost directly related to your professional activities.
Influencers can claim part of their phone and Wi-Fi bills, the amount of their rent if they shoot from home in a dedicated workspace, and any software they use for work — including social media scheduling tools and teleprompter apps, video editing apps, and premium filters as business expenses.
These are some common ones that are likely to apply to most influencers. But a lot of tax-deductible expenses are super specific to the niche you're working in.
For example, you could write off voice lessons, concert tickets, or even part of your Spotify subscription if you're a YouTube musician. Because you're a professional musician, those expenses count as work-related education for you, even if someone who's a cooking influencer wouldn't get to write them off.
Influencers must figure out how much money they make each year and how much tax they must pay. They have to pay self-employment taxes, federal taxes, and any state or local taxes that apply.
Like other independent contractors, influencers pay taxes four times yearly to ensure they spend only a little.
As a small business owner responsible for paying taxes, you should familiarize yourself with your company's legal structure. Independent contracting or operating as a sole proprietor is a simple means to launch a business. This is the best legal structure for you if you're starting a business and don't expect to make much money.
If your influencer business generates significant profits, consider forming an LLC as a legal business structure.
A Limited Liability Company, or LLC, can help your company save money on taxes and provide you with personal liability protection if your company is ever sued.
The W-2 tax form is common knowledge among the working population. As entrepreneurs, influencers' lives take on a slightly different shape. Consider taking advantage of tax credits and other deductions.
While most people focus solely on their tax liability, you must also consider taking advantage of tax credits and other deductions as a person of influence or a business owner.
You can pay less in taxes on your income as an influencer if you deduct all of your legitimate business expenses.
But you need to know what deductions you're eligible for. Purchases of software, apps, websites, office supplies, and custom-made merchandise can be deducted, as can the costs of purchasing recording or writing equipment.
As an influential person and business owner, you must take advantage of all the tax deductions to which you are entitled.
You can claim your expenses even if you take the standard deduction. So you don't have to itemize just for your business expense write-offs!
If you create content from home and use the internet for editing and uploading it, you should be writing off part of your Wi-Fi bill. But instead of claiming it through the home office deduction, just put it directly on your Schedule C, in box 25 for Utilities. That's because you can't claim home office write-offs if you end up with a business loss, but there's no such restriction if you put it directly on your Schedule C. It gives you more flexibility tax-wise you could even use a loss to offset income from other sources, like a day job.
Expenses related to the influencer activities are tax deductible. This could include equipment, advertising, and even travel expenses related to influencer activities. Influencers can maximize their tax deductions and reduce tax liability by keeping accurate records and retaining receipts.
When it comes to filing taxes, influencers have a few options. You can file your taxes using tax software or hire a tax professional. Hiring a tax professional and operating tax software can be especially helpful for influencers with multiple income streams which need to become more familiar with tax regulations.
It's tax time again, so please remember to send your quarterly payment. As a person of influence and a business owner, you should know that tax season is still ongoing in April like it is for individuals.
In conclusion, tax experts recommend that influential people set aside money regularly to pay their tax obligations. Influencers should save between 25% and 33% of their monthly income in case of tax complications.
If you put aside a small amount from each invoice payment, you won't have to think about the money to pay your quarterly taxes.
Social media influencers must take their tax obligations seriously and be proactive in ensuring they comply with all relevant tax laws. Keeping accurate records of their income and expenses, researching the tax laws in the countries where they earn income, and seeking the assistance of a tax professional if necessary are all essential steps that influencers can take to make the tax filing process as smooth and stress-free as possible.