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Tax season is upon us. With influencers becoming more and more prevalent – and more and more profitable – across a variety of areas, you may be wondering how influencers are taxed.
While maintaining an online platform may start as a hobby, if you’re earning money from your work, you may need to pay taxes on it, just like any other business.
When do influencers need to pay taxes, and how much do they need to pay? Do influencers need to register as businesses? We’ll break down everything you need to know about influencer taxes so you’re prepared for this tax season – and every season after – no matter what.
What is an Influencer?
Influencers are people or brands who create online content and encourage their audiences to engage in specific actions, such as consuming certain content, engaging with certain brands, or purchasing certain products. Influencer audiences range in size from a few hundred fervent subscribers to millions of adoring fans, and the types of content they produce can be equally diverse. Bloggers, podcasters, artists, online gamers, Instagram models, and more all fall under the umbrella of influencers.
Successful influencers engage, retain, and grow their audiences throughout their careers. Once they have a dedicated audience, how they can monetize their content creation is plentiful. Advertisements and brand sponsorships are only a couple ways influencers can leverage their work and make money from their content.
While influencers often create content on a part-time basis, many can make a living from their work. And, just like any other business, influencers must pay taxes on their earnings.
Do Influencers Have to Pay Taxes?
If you’re making money as a content creator, you’ll likely have taxes on it, whether it’s a full-time gig or a cool side hustle. There are a couple of things that affect how you pay taxes on your earnings as an influencer. Here are some things about influencer taxes to consider:
Income Tax
Like any other vocation, content creation is taxed when it generates income. That means like other self-employed individuals, influencers in the US must report their income to the IRS. This will likely be done using a Schedule C, Profit or Loss From Business form, which you can find here. The good news is that this is also the form you will use to report expenses and other deductions from your income. More on that later.
Note that influencers, like any other individual, must pay taxes on every stream of income they earn. If influencers have other side gigs or another full-time job, they must fill out tax forms for each.
Self-Employment Tax
There’s more to influencer taxes than just income tax. The IRS classifies content creators as self-employed, so influencers must pay self-employment tax (SE) along with income tax on their content creation earnings. This applies when influencers make more than $400 a year from their efforts.
Why is this? Unlike traditional employees, influencers do not have employers setting aside money for Medicare and Social Security. The self-employment tax treats influencers as both the employer and the employee to cover these taxes.
There’s some good news about the self-employment tax, though. Influencers may be able to deduct up to 50% of this tax from their taxable income.
Independent Contractors
In addition to self-employment, many influencers also collaborate with other brands or companies to support their content. Brand deals, sponsored posts, and other collaborations may qualify an influencer as an independent contractor, which has tax implications.
If a company pays an influencer more than $600 in a year for that influencer’s work, the influencer qualifies for tax purposes as an independent contractor. The business to which the influencer is contracted will provide a Form 1099-NEC to the influencer, which will be used to report the earnings made through the collaboration.
Note that even if the influencer does not make more than $600 from the contract, or if the business does not provide a Form 1099-NEC to the influencer, the influencer must still report any income earned from the contract to the IRS.
The golden rule for influencer taxes is this: if you make any money from your content creation activities, you should report it as income on your tax forms. No exceptions!
Declaring Gifts
Many influencers receive compensation from companies or brands they work with that is not cash. These gifts, called “payments in kind,” most often include merchandise, products, or other services that the influencer promotes on behalf of the brand and then gets to keep. These payments in kind can also include events or travel that are paid for by the brand.
Remember the golden rule of influencer taxes here. Any compensation an influencer receives for services must be reported as income. Only if the total sum of payments in kind is less than $100 can it go unreported on an influencer’s tax filing.
If you’re an influencer, be sure to keep careful track of any gifts or payments in kind you receive through brand deals or other collaborations. You’ll need them when you file your taxes.
To learn more about the value of influencers to businesses, check out our guide to influencer campaigns for start ups.
Influencer Taxes in the UK
If you are an influencer working out of the UK, things can look a little different when it comes to your tax obligations.
If you are a self-earner in the UK, you are required to register for self-assessment with the HMRC. All UK residents have a tax-free personal allowance of £12,750, which means you only pay taxes on income above that amount. If you’re a new or smaller influencer without other streams of income, your income may fall within that allowance.
Similar to the self-employment tax in the US, self-employed individuals in the UK must pay their own National Insurance contributions in addition to other taxes.
What Expenses Can Influencers Claim?
Like any business, content creation takes money to make money. Influencers can claim expenses on their tax reports to reflect the money they’re putting in to make their content shine.
Tax-wise, this means influencers can subtract their expenses from their gross income and lower the amount of income on which they have to pay taxes. For example, health and wellness influencers may deduct the cost of the equipment used in their videos from their taxable income.
Other deductible expenses for influencers can include:
- Recording equipment, such as cameras and microphones
- Computers, tablets, or smartphones
- Website hosting and software subscriptions
- Travel costs
- Office furnishings
- Marketing costs
If you use certain items, like your phone, for personal as well as professional use, note that only the expenses related directly to the function of your business can be written off as an expense. The same applies to working from home – only the parts of your home that you use to run your business and create your content can be counted toward expenses.
Keep careful track of how, when, and where you spend your money to make your content. Doing so can reduce your taxable income and lower the amount you owe on your tax bill.
To learn more about influencer marketing, check out our guide to the Top Ten Influencer Marketing Start-Ups.
Influencer Taxes Tips and Best Practices
Taxes can be confusing, especially if you do not take the effort during the year to stay organized. When it comes to influencer taxes, there are things you can do to stay ahead of the game and reduce the headache of determining your tax obligations as an influencer. Here’s what we recommend:
Hobby or Business?
If you’re an influencer wondering about your tax obligations, the first thing to determine is whether your content qualifies as a hobby or as a business. If you’re just starting out as an influencer or you are not actively making money through your work, the IRS may classify your content creation as a hobby instead of a business.
What does that mean for your taxes? Most importantly, it means your expenses are not deductible. You cannot and should not claim expenses related to your content creation on your tax return if your influencer activity is not a business.
Even if you are not actively pursuing profitability with your content creation, the IRS can still designate your content creation as a business. If you’ve still turned a profit over three of the last five years, or if you demonstrate likely future profitability, the IRS may decide your influencer activity is a business and tax it accordingly. You may deduct related expenses only if your influencer activities qualify as a business.
If you’re not sure whether or not your influencer activity counts as a business, speak to a tax professional to make sure.
Setting Up a Business as an Influencer
The tax information outlined in this guide applies to influencers who are self-employed or claim sole proprietorship of their content creation activities. Influencers can, however, set up different kinds of businesses for their content creation, which can alter their tax obligations.
A common option for setting up an influencer business is an LLC or limited liability company. An LLC separates your personal assets from your business assets, granting you protections for your personal finances and introducing potential tax benefits. LLCs can be a great choice for up-and-coming influencers who aren’t yet making a lot of money on their content creation, and they aren’t as difficult to set up as other business structures. How you do so depends on the state in which you work or reside.
Another option for influencers is an S corporation, though the IRS requirements for these types of entities can be much stricter.
While these business structures can have tax benefits for influencers, they can also be more complicated and have stricter requirements. Consulting a professional can be your best bet to correctly setting up a business as an influencer.
Staying Organized
The best way to stay on top of your influencer taxes is to stay organized throughout the year. Keeping track of your expenses and setting up a system for tracking invoices, pay stubs, and receipts is a must.
Google Sheets or Excel may cut it when you’re just starting out, but using dedicated accounting software as your business grows can be the best way to stay organized as you gain traction and encounter new challenges. Importantly, it prepares you for potential audits and reduces the stress that comes with each tax season.
Most businesses make quarterly tax payments to the IRS, on April 15, June 15, September 15, and January 15. It is important to set aside portions of your earnings toward taxes throughout the year so you do not find yourself overly burdened by the year’s tax deadlines. Making a savings account solely to run your business can be a great way to separate your personal and business expenses and manage your influencer finances.
In Conclusion
There’s a lot to think about as an influencer. In addition to sharing your talent online, you have to manage your own business and keep track of the money made and money spent on your work. Like any other business, this includes preparing your taxes.
Influencers should stay informed and up-to-date about their tax obligations. Check your local state and country guidelines to ensure you are meeting all your requirements, and stay proactive throughout the year in managing your finances to ensure you’re never scrambling to pay your tax bill.
As always, if you have questions regarding your influencer taxes, contact a tax professional.
Looking to build your business and improve your brand as an influencer? Find out how to curate a memorable brand image here.
