You have been working extremely hard on your social media content and managed to grow your following. You have even managed to monetize your platforms and joined the ivy league of social media influencers.
This is not a walk in the park. Most people do not know how difficult it is and how much work it takes for one to create a source of revenue from social media. Your time revolves around production, creating ideas, and sharing content regularly, meaning that your time is limited.
The income is worth the time you spend creating and sharing content. However, you need to be aware of the taxes you are supposed to pay. Getting ready for the tax season is one of the most confusing and frustrating things for social media influencers.
Social media influencers have to deal with different tax challenges compared to employed people who have a W-2. That notwithstanding, it is important for them to learn about their taxation and how to save on taxes.
How Social Media Influencers are Taxed
Even though the currency used by social media influencers and employees is the same, it is treated differently when being taxed especially because of how the money was earned. The IRS classifies employees and social media influencers differently.
Social media influencers are treated as small businesses and independent contractors by the IRS. Similarly to employed individuals, influencers will still be expected to file a tax return—under most circumstances, a basic federal tax return can be filed for free. There are some differences though. For instance, while employees get the W-2 forms when paying taxes, social media influencers get the 1099 forms. The 1099 forms break down their annual income for taxation.
They also have to report the sources of their income for taxation. On the other hand, employees do not have to worry about this not unless they are working for different employers.
One of the most common sources of income for influencers is sponsored content. However, this is not the only source of income for them. They can also earn money from influencer marketing and promotional advertising, branded advertising, branded merchandise, and support from their fans. They have to declare all these sources of income.
To save money on taxes, social media influencers need to first avoid some common tax mistakes.
Tax Mistakes To Avoid for Social Media Influencers
Avoiding some common tax mistakes is crucial when it comes to tax compliance for influencers.
Here are some mistakes that social media influencers need to look at;
Forgetting About Valuable Deductions
Since social media influencers are self-employed and are supposed to benefit from some valuable deductions that are not available to employed people. These deductions play a vital role in lowering their taxes.
As an influencer, you need to keep these deductions in mind to protect your income from taxes and save some more money. This will ensure that you do not spend huge money on taxes.
Some of the common deductions you should keep in mind include marketing and advertising expenses, copyright and trademarking fees, software, editing and lighting equipment, video and camera equipment, smartphones, computers, and all equipment used for creating content.
If you are not sure about all the valuable deductions, it is always good to consult a tax professional to ensure that you can save on taxes.
Thinking That Their Income is Exempt
This is one of the biggest mistakes that end up costing social media influencers a lot of money. Some social media influencers assume that the money they make from their content is not supposed to be taxed. This is not true.
It is important to note that as long as you are making at least $600 annually, then the money that you make as a social media influencer should be taxed. If you hide this, you might face some legal charges later and end up paying a lot of money to the IRS.
Strategies to Save on Taxes as a Social Media Influencer
Early Preparation for Taxes
Social media influencers should start early preparation for their taxes. This means that they need to keep some money for tax payments even before the tax season. They can do this from time to time to ensure that they have enough money by the time they are paying taxes.
Some influencers, especially the new ones, do not like this approach. They often find themselves running around and looking for enough money to pay taxes before April during the tax season.
You can avoid this pressure and stress by saving every time you have some income from your content. You will have no issues paying your taxes during the tax season.
Hiring Tax Experts
As discussed above, taxation is one of the most confusing things for social media influencers especially if they do not have a financial background. It is, therefore, important for social media influencers to hire tax experts.
These professionals understand everything about taxation and what is required by the IRS for social media influencers. They make sure that one is ready for the tax season on time and that everything that needs to be done is correctly done.
Hiring tax experts can help influencers save money since they will meet all tax requirements, save on valuable deductions, and avoid any legal fees or proceedings.
Tracking Everything
Every business person, whether an influencer or not, needs to use tools that enable them to track all their income and expenses. They need to know what is bringing money in and what they are spending the money on.
Technology advancements have given birth to thousands of finance apps that social media influencers can use to handle their cash flow. Some of these apps are free, while the paid ones are quite cheap.
Using these apps, social media influencers should track their sources of income, indicating the amount of money and where the money is coming from. For example, $500 in June from sponsored content. Everything that the IRS considers to be income or revenue should be tracked.
Just like they track their sources of income, they should also be recording everything they spend the money on. This is important especially when it comes to the valuable deductions discussed above. It is also good for financial management.
Read and Understand Partnership Contracts
Failing to read partnership contracts is another mistake committed by most social media influencers. This can end up costing them a lot of money when it comes to taxation especially when the contracts affect their income.
These partnership contracts contain information about the amount of money that social media influencers will earn, how the money will be paid, and the kind of relationship between the brand or company and the influencer.
All this information is important for taxation. Social media influencers can even involve legal minds or tax professionals to help them understand the contracts before going forward with the project.
In conclusion, social media influencers need to always remember the tax write-offs that they qualify for. Apart from the valuable deductions discussed above, other tax write-offs that can help them save on taxes include prizes for giveaways, beauty products and clothing, app fees, personalized merchandise, creative and editing software, online advertising, assistance fees, electronics, office supplies, website expenses, and industry education.
Just like any other business person, social media influencers are supposed to pay taxes on their income. However, they can save a lot of money on taxes if they follow the guidelines discussed above.
