Tax requirements for content creators can be complex and confusing. Here are a few tax tips for setting up a better system.
Eight tax tips for content creators:
You likely have more than one income stream as a contract creator. This alone can turn tax season into a headache. On top of multiple income sources, there are business-related expenses to report to the IRS, and you may have to pay estimated taxes throughout the year, too.
1. Assess your deductible expenses
As a content creator, you can deduct eligible expenses to lower your income and pay less in taxes each year. You can deduct any expense related to your business and its operations. Here are some examples of deductible expenses:
Costs of running and maintaining your website
Electronics, like a laptop, used for work
Money spent on online advertising, like Google Ads
Phone and internet bills, if used part of the time for work
Prizes you give followers for special events
Software used to edit your photos or videos
Keep detailed records of everything you spend for your content creation business throughout the year to see those significant deductions.
2. Pay quarterly estimated taxes
Traditional W-2 employees don’t have to worry about quarterly taxes because their employer withdraws taxes from their paychecks. However, as an independent contractor, you have to pay these taxes yourself. Estimated taxes are usually due April 15, June 15, September 15, and January 15, though sometimes those days can vary, depending on the year.
You may be able to avoid estimated taxes if you don’t owe more than $1,000 in tax for the year or if you didn’t have any tax liability in the year prior. However, if you earn a lot of income all year and don’t pay estimated taxes, there is a tax penalty from the IRS.
3. Don’t forget self-employment tax
Self-employment tax consists of Medicare and Social Security taxes, which are 2.9% and 12.4%, respectively, totaling 15.3%. When saving money for taxes from your paychecks, make sure you account for this additional tax.
4. Make sure your business is not just a hobby to the IRS
The IRS won’t recognize your business as legitimate unless you have made a profit in at least three of the most recent five tax years. Other considerations are whether you depend on the business income and the time spent running it.
5. Learn the tax implications for your business structure
Many content creators are independent contractors, meaning they are sole proprietors and haven’t established a business entity. Contractors will file Schedule C on their personal tax return, or they will be classified as a partnership in a separate tax return if there are multiple business owners.
Sole proprietorships are very simple, and most contractors start with this kind of business. However, it doesn’t provide any liability protection for the business owner, meaning that your personal assets are not separate from your business assets.
There are tax implications for each avenue. For instance, both sole proprietorships and LLCs are pass-through entities. That means owners report income on their personal tax returns. Both types have to pay self-employment taxes.
6. Get familiar with 1099s
Any client who pays you more than $600 in the applicable tax year must send you a Form 1099 that summarizes what you earned. As of 2020, the IRS requires that businesses use Form 1099-NEC instead of Form 1099-MISC to report payments made to independent contractors and sole proprietors, so this is the form you should receive as a content creator at the beginning of the year.
7. Keep organized records
Self-employed individuals have some extra steps to follow related to taxes. This includes keeping detailed, organized records of all income and expenses from the year and estimated taxes paid and to pay.
An effective way to do it easily and accurately is to use an app or platform like QuickBooks. Transactions are automatically recorded and categorized, and you can pull reports whenever you need them. This kind of tool makes it much easier for you to pull everything in tax season and report accurate information to the IRS. It also helps you have any necessary proof should the IRS have questions.
8. Keep track of gifts you receive
It’s common for content creators to receive gifts as payment for services. For instance, maybe you receive a gift from a brand in exchange for writing a product review. Even though it’s not cash, you still need to record the value of each gift you receive and report it on your tax return. The IRS usually considers these gifts as part of your business income.
Have tax questions? We have answers
Navigating the world of taxes can be confusing for content creators and independent contractors. Using the right tools and harnessing best practices will help you ensure you’re doing everything correctly and taking advantage of tax breaks available to you.
The team at Franco Blueprint is ready to help you succeed. We assist you in creating more effective accounting systems, so tax season is never daunting.
Contact us today to set up a free consultation.