To keep it nice and simple, yes, you will need to file taxes if you have a business as an influencer. Social media influencers and content creators are business owners. According to Thomas Williams, EA and co-founder of Deducting The Right Way®, “Unless it’s a hobby or employer-employee relationship, an influencer operates a business, even if it’s a part-time or irregular income source.”
And, just like any other small business, “you are taxed on the net income after all expenses are included,” says Williams. “Since the U.S. is a pay-as-you-go tax system, this is due throughout the year in estimated tax payments.”
If you are bringing in money as an influencer, it’s very important to treat it seriously and to keep good records. “Make sure you are running a business and not a hobby, as the IRS hobby loss rules are extremely punitive where you will lose all deductions and still be taxed on the income,” says Crystal Stranger, EA and International Tax Director at GBS Tax.
Even if it doesn’t feel like you’re running a formal business, it’s important to treat it seriously, keep good records and be prepared to pay taxes on the income you bring in. Here are a few expert tips that can help you to navigate your taxes as an influencer.
How to Navigate Influencer Taxes
Get to Know Your Business Entity
The first thing you’ll want to do as a small business owner who plans to pay taxes is to get to know your business entity. “If an influencer hasn't created a business entity, the default classification will be an independent contractor if one person filed on Schedule C inside the personal tax return, or as a partnership in a separate tax return if multiple owners are involved,” says Stranger.
Operating your business as an independent contractor or sole proprietor is an easy way to get started as a business owner. This is a great business entity for those just starting out and not making very much money. While a sole proprietorship is the easiest business entity, it isn't the safest. It provides no protection from liability or of your personal assets.
If your influencer business starts to bring in more cash, you should consider incorporating your business by becoming an LLC. An LLC, or Limited Liability Company, can reduce the taxes that your business pays and can offer you personal protection if your business was ever sued.
File Your W-9 with Clients and Receive 1099s
Most people who have been employed are familiar with the W-2 tax form. It looks a little different for influencers running their own business. “As an independent contractor, influencers use Form W-9 and receive Form 1099 from their clients after the year ends,” says Williams. “Under this procedure, the IRS knows the total figure earned from affiliate marketing, advertising, sponsorships and brand ambassador relationships.”
Each client that you work with as an influencer who pays you more than $600 in a year must send you a 1099 by January of the following year. “Since [influencers] don’t work under a single company and are hired as outside ambassadors and such, they must pay the self-employment tax as well as income tax,” says Clayton Hasbrook, attorney at OklahomaLawyer. “They have to fill out the 1099 form, specifically the 1099 NEC, because they are independent contractors and not permanent employees of a company.”
Deduct Legitimate Expenses
While most people only think of paying their taxes, as an influencer and business owner, you also need to think about deductions. “An influencer gets to deduct eligible expenses to pay less tax on their income,” says Williams.
Influencers can deduct “anything and everything directly related to their business and necessary to operations,” says Stranger. “Commonly this includes home office for the room used for shooting plus storage space, auto expenses for trips related to filming, travel expenses (with limitations).” Subtracting your legitimate expenses from your earned income as an influencer will lower the amount of taxes that you pay.
But, you have to know what you can deduct. John Li, co-founder and CTO at Fig Loans, says that “Influencers can write off a load of expenses, and they should work with an accountant to ensure they’re maximizing their write-offs and minimizing the taxes owed. You can write off your recording or writing equipment purchases, prizes for giveaways, software and app fees, website expenses, office supplies and even personalized merchandise.”
The best and easiest way to navigate your taxes as a small business is to track your income and expenses over the year and to not leave it until tax time. According to Hasbrook, “An expense management app is the best way for influencers to track their income and any write-offs they incur.”
Tracking your income and expenses is important for paying your taxes, but it has another benefit. Williams says, “It’s best to keep track of every cash, debit or credit card transaction to prepare for a potential audit, including receipts, paid invoices and monthly statements.” To get you started, we have a free Influencer Income & Expenses Tracker that you can download.
Be Wary of Your Sources of Advice
It’s really important to check the credentials of your sources when seeking tax advice.
“Avoid using tax tips from non-licensed professionals — they don’t know the details of your specific tax situation,” says Williams. “Plus, you’ll get the tax bill and penalties, not them.”
If you’re looking for solid tax advice, look for a source with the EA or Enrolled Agent designation. (Two of our sources for this article are enrolled agents.) According to her email signature, Crystal Strange, an EA, says, “EAs are the only federally licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the Internal Revenue Service.” If you’re going to ask for tax advice, it’s best to get it from someone who knows what they’re talking about.
And when it comes to getting help from an accountant or bookkeeper, look for licensed professionals with small business experience. They will be better suited to understanding the nuances of small business tax filings.
Pay Quarterly Taxes
As an influencer and small business owner, it’s important to recognize that tax time isn’t just once a year in April like it is for personal taxes.
Businesses pay estimated taxes four times a year, instead of just once. If you don’t pay your quarterly taxes, you may be given a small fine by the IRS when you pay your taxes in April the following year.
Track the Value of Gifts
A major type of content made by influencers is product reviews. Often, influencers receive products for free from brands with the assumption that they will review and share the product with their followers. It’s important for influencers to track the gifts they receive and their value.
According to Li, “Generally, yes, the tax authority considers your gifts a part of the income of your business, and they must be included in your filing.”
Set Aside Money for Taxes
The final expert recommendation for navigating your taxes as an influencer is to regularly set aside money for your taxes. “For good measure, influencers should aim to put one-quarter to one-third of their monthly income into a savings account to prepare for tax time,” says Li.
By setting aside a small portion of each invoice payment, you'll be prepared to pay your quarterly taxes and not be scrambling to find enough money to cover your tax bill.
Getting Help with Influencer Taxes
While most people think of tax time as April, for influencers and small business owners, tax time is anytime you receive money into your business or buy something for your business. It’s important to track your income and expenses and set aside a portion of your income so that you’re ready to pay your quarterly taxes throughout the year.
The good news is that Incfile offers a Business Accounting and Bookkeeping service. Our trained and licensed accountants are knowledgeable about small business taxes, so you can feel confident that your taxes will be done right. To take the hassle of influencer taxes off your plate, check out the service and start with our free business tax consultation.
Page is a freelance content marketing writer with experience writing about small business, the future of the workplace and health. She also operates a weekly email newsletter where she shares advice on living an authentic, intentional life. When not writing, you can find Page traveling, fostering older cats and working as a sexual assault advocate.