Like freelancers, content creators have to pay taxes on gifts and on more than just income. If gifts were received for work, they’re taxable. Here’s what else to know.
Content creators receive gifts to write product reviews or promote merchandise to their many followers on social media.
Any gift received in exchange for work is considered taxable income.
It’s important to track the value of gifts when they’re received.
Becoming a content creator can be a fruitful, flexible, and rewarding career path. That’s why more than 50 million people around the globe consider themselves content creators, contributing to a market worth more than $104 billion.
Content creators are experts in developing content that engages and inspires social media users and general online viewers. While this avenue can give people a steady income, there are a few nuances to understand about income and taxes. One big question surrounds gifts, since many content creators will receive a product in exchange for their services, sometimes instead of cash.
Are these kinds of gifts taxable? Here is your guide to gifts and taxes for content creators.
What kinds of gifts do content creators receive?
Content creators will often create product reviews for brands or promote items on their social media accounts. In exchange for this service, businesses may send them free products or other gifts. Brands may also decide to send out free merchandise in the hope that a content creator will leave a positive review.
For example, if an Instagram content creator highlights jewelry on their account and has a strong following, a jewelry company may send them a free necklace or bracelet so the content creator will talk about the product or leave a product review for the brand. Sometimes a gift will be sent in conjunction with a cash payment.
It’s important that content creators keep track of all the gifts they receive when there is an actual exchange of work involved, just as they would their cash income. These gifts are considered income since they were given in exchange for work.
How do taxes work for content creators?
Content creators are usually considered independent contractors, sole proprietors, or freelancers, all of whom are treated the same when it comes to taxes.
This means that you would provide a W-9 to your clients and they would give you Form 1099 at the beginning of the year to summarize what they paid you. Clients should send you a 1099 if you received at least $600 from them annually.
All income is pass-through, meaning that the content creation business isn’t separate from you as the individual, and all income is reported on your personal tax return.
What are some other tax requirements?
There are a few other tax requirements freelance content creators need to know about. First is paying quarterly estimated taxes. Because you don’t have a regular employer taking out taxes from each paycheck, you’re responsible for paying tax to the IRS throughout the year. The four deadlines are typically April 15, June 15, September 15, and January 15.
In addition, self-employed workers have to pay an extra self-employment tax on top of income tax. This tax covers Medicare and Social Security and adds 15.3% on top of your income tax rate.
What are the tax advantages?
There are also a few tax advantages of being self-employed. You can deduct business expenses from your income, which can lower your tax burden. You can deduct anything that helps you run the business, including a home office, travel, technology, your vehicle, internet, and more.
As a content creator, you can also deduct costs such as website maintenance, editing software, camera equipment, and advertising and marketing expenses. Track all expenses directly related to your job.
One useful practice is to set aside a little money from each paycheck to cover estimated tax expenses each quarter. Another is to always keep detailed tax records so you’re not scrambling to find income and expense information when it’s tax season.
Do you have to pay taxes on gifts?
The short answer is yes, you must pay taxes on gifts.
Always track the value of all gifts you receive for your content creation business. The IRS considers gifts in exchange for work actual income for your business, even though you’re not receiving cash you can use to pay your bills.
The intent behind each gift is important, though – if something was given out of generosity and not in exchange for work, it may be a tax-free gift. But if a brand sends you a free product so you’ll review it, it’s considered taxable.
It’s best to record the value of each gift you receive at the time you receive it so you’re not wondering later how much something costs. You’ll also need to report the monetary value of services, merchandise, or products you receive for promotions on your website or social media page, since that is all considered taxable income by the IRS.
Have more tax questions?
Being a content creator has a lot of benefits for people who like to inspire others and stay present on social platforms. But like any freelancer, you have to pay self-employment tax and include gifts as payment income on your tax return.
These regulations aren’t always easy to understand, especially if you’re new to the industry. Working with financial professionals can help you create the right strategy for accounting, tax preparation, and cash flow management.
Turn to the team at Franco Blueprint. We provide accounting services to small businesses and content creators, helping you set up accounting systems and manage your taxes. We can also help you set up your business if you’re interested in forming a limited liability company (LLC) or other entity.
Our experienced team can also help with compliance management, systems implementation, CFO and controller services, and general consultations.
Reach out to Franco Blueprint today to schedule a free consultation with an expert.