You probably thought the most difficult part of becoming a content creator was going to be generating enough quality content to keep your audience engaged and growing.
Then you thought about taxes.
There’s so little information out there about how to plan for the taxes that go along with being a content creator or influencer–and beyond that, there are lots of unanswered questions right now about how to treat some aspects of your business. The only thing you can count on is that there’s plenty of half-explained “tips” that are likely to lead you into trouble if you follow them blindly. TikTok is great for entertainment and maybe learning how to use something you have around for a different purpose. But it’s not a great venue for sharing nuanced professional guidance.
So what does it look like to plan for taxes as an influencer? There are a few key facets that we’ll touch on briefly here:
- Getting paid as a sole proprietor / self-employed person / 1099 contractor
- Whether creating a business entity for yourself makes sense or not and which kind to choose
- What kinds of things you should be keeping track of
- How to estimate what you should save / send in to the IRS and state
This is only going to be some surface-level guidance, and it’s important to get advice that’s specifically tailored to the details of your situation.
But that said, let’s lay out some basics.
Getting paid as a Sole Prop / Self-employed / 1099 contractor
When you’re paid as an employee somewhere, your employer is going to have taxes withheld from your pay that (assuming things are filled out correctly) should generally be enough to cover the taxes relating to that income. But as a sole proprietor / self-employed person / 1099 contractor (we’re going to use these terms interchangeably from here on out because they all refer to the same thing), that’s not the case at all.
Your brand deals or sponsorship fees or affiliate income is going to come to you without anything withheld at all. Which means two really important things: 1) you’re going to have to save your own taxes out of that money and 2) you’ll be responsible not only for federal and state income tax, but also for what’s called “self-employment tax.” Self-employment tax is the social security and medicare taxes that also typically get withheld from people’s paychecks–plus the other half that employers contribute in as well. You’re both the employer and employee in this situation. Yay!
Should you create an entity and which kind should you choose?
This is definitely a question to review with an advisor, but the bottom line is generally speaking, we DO recommend that you create some kind of legal structure around your business. It’s going to help with one really important idea: that we want to separate and isolate the business activity from your general personal life. Right now, there’s a good chance that your business and personal income and expenses are all intertwined in shared bank accounts and credit cards. We need to create a nice, clear wall between your personal life and the activity of your content creator business.
Your business will have its own tax ID number, name, bank account, etc. In most states, the simplest path will be to create an LLC, which gets you all the benefits of separation legally, but keeps the simplicity of just filing the business activity on your personal tax return. There’s a lot of chatter out there about getting your influencer business set up as an S-Corp to save on taxes, but overwhelmingly those “tips” are leaving out a LOT of details. If you’re generating less than $75-100k in profits, it’s unlikely that being an S-corp is going to save you anything when you add in all the extra costs and complexity that go with that structure. That said, for influencers that are further along in their growth, we have successfully implemented the S-corp strategy many, many times.
What kinds of things to keep track of for deductions
As an influencer or content creator, you’re going to face a lot of uncertainty when it comes to your deductions. That’s because this is still an evolving industry, and the tax laws governing many aspects of your content business are going to need to adapt. They haven’t yet. So we’re going to need to do our best to navigate using the current frameworks of what’s an allowable deduction and what’s not until things catch up with you.
At a base level, you’re going to want to deduct anything that can be associated as a cost of you making the money that you make. Professional styling fees for appearances, travel, supplies, tech and SaaS services, photography and videography, etc. Where you’ll want to get specific guidance from your advisor is on the more nuanced things like home office deductions, merchandise for promos, in-kind items you receive, etc. This business isn’t a magic way to get to write off your entire life… remember, if it sounds too good to be true, it probably is. But you’ll want to work with an advisor that understands the influencer industry well enough to give you the guidance to be as strategic as possible–while keeping you legal.
How to estimate what to save and send into the IRS
The taxes that you’ll pay are ultimately based on what you have left after your allowable business deductions. Meaning, you’re not taxed on the total amounts that your agency or brands paid you–you’re taxed on what’s left after expenses. That said, some of you might not know what that’s going to be if you’re not keeping close tabs on your expenses throughout the year. There’s two ways to approach this.
If your influencer business is large enough to afford outside support from a firm like ours (generally means you’re making over $500k/year in revenue) then you’d benefit from having someone take care of your bookkeeping so you know where you stand at any point in the year. We’d also layer on some tax planning every quarter, so we can project where your taxes are going to land at year-end and make sure you’re covered.
And if you’re not at that point yet, don’t worry! We have two options for you to be able to estimate your taxes as well. As a starting point, you could always use 20% of your gross receipts (the total amount you collect from your various income streams). Even slightly more accurate would be about 30% of your net income (meaning what you have left after you deduct your business expenses). It’s a higher percentage because it’s of a smaller number, but is more accurate because your profit is actually what your real tax bill will be based on.
As we’ve said many times–getting specific advice that’s tailored to the nuances of your situation is critical. We also hope that some of these guidelines will point you in the direction of conversations worth having. As an influencer, the first step in getting all this right is to make the mental shift that you’re going to take this seriously as a business. From there, all the rest of it is just getting good advice and executing. If you’d like to learn more about working with Revel in an in-depth way, just follow this link to take the next step!