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\n\n\n\nBeing a social media influencer can be a fun and lucrative endeavor\u2014until you\u2019re hit with an unexpected tax bill, that is. Understandably, influencer tax obligations can feel quite overwhelming, especially if you\u2019re new to self-employment.<\/p>\n\n\n\n
Simply put, if you generate a profit of $400 or more from sponsored content, affiliate links, endorsements, etc., then in the eyes of the IRS, you\u2019re self-employed. This means you need to file a tax report even if your income stream is only part-time or irregular. <\/p>\n\n\n\n
But what taxes apply to social media influencers? Are there any deductible business expenses? How can creators streamline the tax process to make it all a little less stressful?<\/p>\n\n\n\n
Don\u2019t let your influencers wait until tax season to find out. Share this blog with your creator roster to show them why being proactive about tax season is so crucial, and offer some tips for staying ahead of the game.<\/p>\n\n\n\n
Unexpected tax bills can put you into a financial crisis\u2014but that\u2019s not the only reason you should proactively plan for tax season.<\/p>\n\n\n\n
If you don\u2019t file your tax reports\u2014or if you file them incorrectly\u2014you could end up in hot water with the IRS. Tax fraud, evasion, and failure to file all have severe penalties ranging from fines to jail time. <\/p>\n\n\n\n
If you\u2019re confused or worried about your influencer tax obligations, you\u2019re not alone. 25% of self-employed workers are concerned about being audited due to an accidental error on their tax return. Seventeen percent are \u201chardly confident\u201d or \u201cnot confident at all\u201d regarding the accuracy of their last tax report.<\/p>\n\n\n\n\n\n\n\n
Data via <\/em>Credello<\/em><\/a><\/p>\n\n\n\n But, there are two key ways you can achieve proactive tax planning efficiency.<\/p>\n\n\n\n The first is to automate your invoicing process using billing software<\/a>. Along with eliminating the risk of human error and ensuring your invoices are accurate, billing software stores all your data in a centralized location, ready for tax season.<\/p>\n\n\n\n So, no more scrambling around trying to find lost invoices or running into auditing problems because of a billing error.<\/p>\n\n\n\n Secondly, you need to brush up on your influencer tax obligations. This involves knowing what taxes you\u2019re required to pay and why. A lot of people run into tax issues simply because they don\u2019t realize they\u2019re required to pay a specific tax.<\/p>\n\n\n\n To help you understand your tax obligations a little better, let\u2019s now discuss the most important rules that apply\u2014regardless of whether you classify yourself as a content creator or influencer.<\/a><\/p>\n\n\n\n These are the main tax obligations for social media influencers, YouTubers, bloggers, or any other type of online influencer.<\/p>\n\n\n\n Self-employment tax is paid by individuals who work for themselves. It consists of social security and Medicare taxes.<\/p>\n\n\n\n If you\u2019ve ever been employed, you\u2019ll know that social security and Medicare taxes are calculated and withheld by your employer. So, they\u2019re pretty much out of sight, out of mind. But if you\u2019re self-employed, you have to calculate and pay these yourself in the form of self-employment tax.<\/p>\n\n\n\n Currently, you\u2019re obliged to pay self-employment tax if you generate a profit of $400 or more from self-employment in any given tax year. <\/p>\n\n\n\n Being self-employed, you\u2019re solely responsible for reporting any income you make from your influencing activities. Failing to do so with 100% accuracy can land you in hot water should you get audited. Tracking your income and expenses throughout the year (instead of leaving it until the last minute) reduces the risk of errors and is much less stressful.<\/p>\n\n\n\n Paying estimated quarterly taxes instead of one lump sum in April is a good idea for the same reasons.<\/p>\n\n\n\n So, how do you go about reporting your income? There are two important forms you need to know: Schedule C and Form 1099.<\/p>\n\n\n\n Every bit of income you generate, from sponsored posts to affiliate marketing commissions, must be reported to the IRS. This is done via a Schedule C (Form 1040) tax form. Schedule C reports the volume of profit or loss you generated as a sole proprietor.<\/p>\n\n\n\n The next relevant form is Form 1099. You\u2019ll receive one of these from every brand you work with that pays you $600 or more. These will also be sent to the IRS, but you need to keep your specific copy for auditing purposes.<\/p>\n\n\n\n Just note that even if you don\u2019t receive a 1099 form (because you were paid less than $600), you still have to report this income to the IRS.<\/p>\n\n\n\n Accurately recognizing revenue and reporting your income is simple enough when you only work with one or two brands. But as your customer count increases and your contracts grow more sophisticated, things become more complex. <\/p>\n\n\n\n A good example of this is if you begin to create your own content on platforms like Patreon. This will require you to adopt a subscription revenue accounting<\/a> model, which can complicate your revenue calculation and tax planning processes. <\/p>\n\n\n\n The more complex your revenue model becomes, the more important it is for you to automate your accounting and tax filing process to submit accurate tax reports.<\/p>\n\n\n\n Deductible expenses refer to any expenses incurred by your business that are\u2014as defined by the IRS\u2014\u201cordinary and necessary.\u201d You can write off these expenses at the end of the tax year to reduce your tax bill.<\/p>\n\n\n\n This can result in some serious savings, but what expenses can you deduct? Here are a few examples:<\/p>\n\n\n\n Influencers must also pay state and local taxes (SALT), the sum of which differs depending on location and income source. Liberal states, for example, will typically enforce higher tax obligations than conservative states. <\/p>\n\n\n\n Paying SALT is important as it\u2019s used to fund vital public services such as education, hospitals, road construction, law enforcement, etc. <\/p>\n\n\n\n SALT is deductible for any self-employed taxpayer who itemizes their deductions. Currently, the deduction is capped at $10,000 annually (or $5,000 if you\u2019re filing separately as a married couple). <\/p>\n\n\n\n Taxes eligible for deduction include income tax, some service taxes, and property taxes. <\/p>\n\n\n\n One of the best things about being an influencer is that you have no geographical limitations\u2014you can work wherever you like. Similarly, you can work with brands based all around the world. <\/p>\n\n\n\n But if you live outside your home country or work with an international brand, you may need to abide by international tax laws.<\/p>\n\n\n\n Tax deductible expenses and influencer freebies, for example, are treated differently around the world. Some countries impose high taxes on all freebies, while others decide how taxable freebies are based on their monetary value and whether they were given in return for a product review or promotion.<\/p>\n\n\n\n Sales tax is a consumption tax that the seller adds to the price of an item at the point of sale (POS). <\/p>\n\n\n\n If you, the seller, collect sales tax from the customer at POS, you then remit it to state and local governments. If you don\u2019t collect sales tax at POS\u2014because you\u2019re operating in a state that doesn\u2019t levy it\u2014it becomes use tax instead. This means it\u2019s the responsibility of the customer to remit the tax to the government. <\/p>\n\n\n\n So, how does this work for influencers? Well, every state has varying laws that differentiate taxable services and non-taxable services. Whether or not advertising is a taxable service in your state will determine whether you need to pay sales tax (or whether the brand you\u2019re working with needs to pay use tax). <\/p>\n\n\n\n Perform a nexus study to get a better idea of how to navigate sales and use tax for your business. <\/p>\n\n\n\n As your business grows, you may need to hire employees or contractors<\/a> to do the things you don\u2019t have time for. <\/p>\n\n\n\n Hiring employees comes with pretty complicated tax obligations. You need to obtain an employer identification number (EIN), withhold federal income tax from your employee\u2019s wages, pay unemployment tax, and more.<\/p>\n\n\n\n Enlisting the services of a freelancer or contractor doesn\u2019t come with as many tax-heavy obligations, and you can deduct the cost of their services as expenses. <\/p>\n\n\n\n So, for example, you can deduct the costs of the freelance video editor you hired to professionally edit your YouTube videos or the web developer you used to build a promotional website. <\/p>\n\n\n\n Similarly, you can deduct the costs of legal, accounting, and bookkeeping services.<\/p>\n\n\n\n Don\u2019t forget to use automated accounting software to streamline this process. The less time you spend filing taxes, the more time you can spend on growth-driving activities, such as trying out some of the latest Instagram reel trends<\/a>. <\/p>\n\n\n\n Turning your online hobby into a fully-fledged business is an exciting journey, but when the dollars start to roll in, so do your tax responsibilities. <\/p>\n\n\n\n By ensuring you\u2019re clued up on your influencer tax obligations, you can avoid any nasty surprises and stresses when tax season comes around. And, as a bonus, you can even enjoy tax savings by deducting business expenses\u2014yes, even that fancy new ring light you\u2019ve had your eye on. Just remember to keep your receipts. <\/p>\n\n\n\nDetermining tax obligations<\/h2>\n\n\n\n
Self-employment taxes<\/h3>\n\n\n\n
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\n\n\n\nReporting income<\/h3>\n\n\n\n
Deductible expenses<\/h3>\n\n\n\n
State and local taxes<\/h3>\n\n\n\n
International considerations<\/h3>\n\n\n\n
Sales and use taxes<\/h3>\n\n\n\n
Tax for hiring employees or contractors<\/h3>\n\n\n\n
Be prepared for tax season.<\/h2>\n\n\n\n