Understanding taxes for content creators
Content creators can generate income from various sources and may have several types of tax forms to file. Like all business owners, however, content creators also get to take advantage of certain tax write-offs. The key is understanding how your income streams are taxed, which forms to file, and what you can and can’t write off.
If you're creating content to make a profit and are earning more than $400 in brand sponsorships, tips, or digital products, then you’re running a business in the eyes of the IRS.
Taxable income
One of the most important things to remember is that whether your earnings are cash from sales, tips, products, or cryptocurrency, the IRS considers it all as taxable income.
This includes:
- Affiliate marketing: Commissions earned from promoting products or services through your blog or on your platform.
- Ads: Income from platforms like YouTube, Twitch, or display ads from specific companies on your blog.
- Sponsorships and brand deals: Payments for featuring or promoting exclusive products in your content.
- Direct sales: Revenue from selling your own merchandise, courses, or digital products
- Donations: Tips or contributions from your audience through platforms like Patreon, Ko-Fi, or TikTok.
- Speaking engagements or appearances: Fees for attending events or guest appearances.
- Licensing fees: Income from allowing others to use your content or likeness
- Products and services: If a brand pays you in products or services for sponsored content, the fair market value of those products and services is considered taxable income.
Income reporting
To report your income correctly as a creator, you’ll need to familiarize yourself with the various tax forms you may have to file. These forms typically include:
- Schedule C Form 1040 — for reporting business income and expenses
- Form 1099-NEC, — specifically for reporting non-employee compensation like freelance work or sponsorships
- Form 1099-K — for reporting payment card and third-party network transactions, like PayPal or Stripe payments
- Form W-9 — this form is provided to clients or sponsors so they have your tax information
- Form 1040-ES — used for estimating and paying quarterly taxes
The tax forms you’ll need to file depend on the platforms you use and how you generate revenue. For example, if you make $600 or more from a brand partnership, the company will send you a 1099-NEC, which you’ll have to report on Schedule C Form 1040.
Tax write-offs
Additionally, as a content creator, you’ll be able to take advantage of various tax write offs to reduce your taxable income. These will be similar to the tax deductions for self-employed individuals, with the most common for creators being:
- Equipment costs (cameras, microphones, lighting, and computers)
- Software subscriptions (editing software, scheduling tools, and graphic design programs)
- Home office expenses
- Travel expenses related to content creation, including airfare and hotel accommodations
- Marketing and advertising costs
- Professional services (lawyers, accountants, and managers)
- Internet and phone bills up to a certain percentage dedicated to business use
- Educational expenses related to your content niche, such as taking a graphic design class or online certification course
It's important to note that the tax landscape for content creators can be complex, especially as your business grows. While these basics provide a starting point, you’ll find it’s always beneficial to work with tax professionals who understand the nuances of the digital content industry—especially as your income streams expand into new territory.
How to file taxes as a content creator
Filing business taxes as a content creator involves several key steps. Here’s the breakdown of each step:
1. Determine your tax status
The first step is to decide if you're operating as a hobby or a business so you know exactly how you need to report your income. If you're creating content to make a profit and are earning more than $400 in brand sponsorships, tips, or digital products, then you’re running a business in the eyes of the IRS. This also affects how you’ll report your income and which deductions you can claim.
Most content creators start as unincorporated sole proprietors, which means you and your business are considered the same entity for tax purposes. As you grow, you might consider other structures like a single-member LLC or an S-Corporation—keeping in mind that each has its own tax implications and benefits.
2. Track your income
Accurate income tracking is essential to proper tax filing and overall business management. You’ll need to set up a system to record all revenue streams and expenses, including the date, amount, and source of each payment. This is also referred to as bookkeeping, and as a content creator, you’ll specifically need to track the following:
- Ad revenue reports from platforms like YouTube or Twitch
- Payment notifications from affiliate programs
- Invoices sent for sponsored content
- Sales reports from your merchandise or digital products
- Donation reports from platforms like Patreon
Consider using accounting software or spreadsheets to stay organized. Tax professionals also recommend that content creators set up separate bank accounts and credit cards for their businesses to ensure they keep their business and personal funds separate to avoid confusion and mistakes.
3. Identify and maximize deductible expenses
As a content creator, many of your expenses are tax-deductible, which can significantly reduce your taxable income. Keep detailed records and receipts for all business expenses, as you may need proof of business-related purchases.
Some often-overlooked deductions for content creators include:
- Prop or costume purchases for videos
- Music or stock footage licenses
- Website hosting and domain registration fees
- Coworking space rentals
- Conferences or networking event fees
- Subscriptions to industry publications or services
Remember, to be deductible, an expense must be both ordinary and necessary for your business. If you’re ever doubting whether an expense is deductible, it’s best to consult a tax professional to be sure.
4. Estimate and pay quarterly taxes
Unlike traditional employees who have taxes withheld from each paycheck, content creators are typically responsible for paying their own taxes throughout the year. The IRS requires you to pay estimated taxes quarterly if you expect to owe $1,000 or more in taxes for the year.
To estimate your quarterly taxes:
- Estimate your annual income and deductions
- Calculate your expected tax liability (including income tax and self-employment tax)
- Divide this amount by four
- Pay this amount to the IRS each quarter—due April 15, June 15, September 15, and January 15
Failing to pay quarterly taxes can result in penalties if required, so it's important to stay on top of these payments.
5. Prepare and file your annual tax return
When tax season arrives, you'll need to file your annual return. This process involves:
- Gathering all income documentation, including the proper forms, payment records, etc.
- Compiling all expense receipts and records
- Completing the Schedule C form to report business income and expenses
- Filing Form 1040 along with any other forms required for your specific content creation business
Once you have all of your documents and completed the proper forms, you can pay your taxes directly to the IRS or use an online tax filing service.
Why understanding content creator taxes is essential
Understanding your taxes as a content creator is essential, as understanding your true income after taxes will enable you to make more informed decisions about how to manage your money. It will also prevent you from being found non-compliant with the IRS, as mishandling your taxes can lead to serious consequences.
For instance, consistently underreporting income or failing to pay quarterly taxes can result in an IRS audit, hefty fines, and back taxes with interest. This can lead to you owing tens of thousands of dollars between taxes, penalties, and interest—plus potential damage to your business and reputation if fraudulent charges are involved.
Tips on Bookkeeping for content creators
Effective bookkeeping is the foundation of healthy financial management and stress-free tax filing as a content creator. It is crucial to prepare your taxes, and it is essential for you as a small business owner to keep track of your expenses.
Here are some tips to help you stay on top of your finances:
Research tax laws and regulations specific to your content
Inform yourself about tax laws relevant to content creators in your niche. This knowledge will help you make informed decisions and remain compliant. For example, if you frequently receive products for review, understand the tax implications of receiving free goods. If you create content in multiple countries, research international tax laws that may affect you.
Invest in the right bookkeeping tool
Using the right bookkeeping tools can save time, reduce errors, and provide valuable insights into your business finances. Consider Bench, an online bookkeeping service designed to meet the unique needs of small business owners and content creators. Bench combines intuitive software with a team of bookkeeping experts to handle your financial tracking in addition to taxes—bringing you peace of mind and allowing you to focus on growing as a creator.
Set aside a portion of your income for taxes throughout the year
Tax professionals recommend that you set aside 30-40% of your income for taxes. This standard practice will help you avoid financial stress when tax payments are due. Consider opening a separate savings account specifically for tax payments to keep these funds separate from your operating expenses.
Additional Bookkeeping Tips:
- Categorize your expenses: Create a system for categorizing your business expenses. This makes it easier to identify deductions and analyze your spending patterns.
- Reconcile your accounts regularly: Monthly reconciliation helps catch errors early and ensures your records are accurate.
- Keep personal and business finances separate: Use separate bank accounts and credit cards for your content creation business to simplify bookkeeping and tax preparation.
- Plan for big expenses: If you know you'll need to upgrade equipment or attend a major conference, start saving in advance to avoid cash flow issues.
- Review your finances regularly: Set aside time each month to review your income, expenses, and overall financial health. This habit helps you make informed decisions about your content creation business.
Get Help With Content Creator Taxes
Navigating taxes as a content creator is an essential part of maintaining a sustainable business. By understanding your tax obligations, tracking your income and expenses diligently, and implementing good bookkeeping practices, you can ensure your content creation business remains compliant and financially healthy.
Remember, as your business grows, so does the complexity of your tax situation. Don't hesitate to seek professional help when needed. Services like Bench are designed to support entrepreneurs like you, handling the financial details so you can focus on what you do best – creating amazing content.
Ready to simplify your taxes and focus on growing your brand and income? Sign up with Bench today and let our experts handle your bookkeeping and tax prep. We’ll handle the numbers so you can have more time to create, innovate, and engage with your audience, all while knowing your finances are in expert hands.
