Nobody looks forward to tax season. However, the not-so-fun experience of paying taxes is much more stressful for business owners. And as an influencer, you are simply a business. Thinking of oneself in this way will help you get into the appropriate frame of mind when it comes to taxes.

Bloggers, YouTubers, and other social media influencers frequently ask the same tax-related questions: what constitutes taxable income? Which business expenditures can be deducted? Does it matter if I have a home office?

In this article, we’ll look at what you need to know to make tax season less stressful.‍

One of the first things you need to figure out is what type of entity your business operates under. As a social media influencer, there are likely three possible business formations you might be operating under:

• Sole proprietorship
• Independent contractor
• Limited Liability Corporation (LLC)

Let’s break down each business type and how to know which one applies to you. 

Sole proprietorships

A sole proprietor is a self-employed person who is in business for themselves. They own and operate 100% of the business. Because the business and the person are one and the same, sole proprietorships file for taxes using their usual personal income tax returns and their social security number. All business income and losses are included on the personal return, usually the IRS Form 1040 as well as the Schedule C supplement (Profit or Loss from a Business). 

Sole proprietorships are taxed on any profit that your business made the past year. Your profit is simply your income minus your eligible business expenses. One of the toughest things for sole proprietors to do is to separate their business expenses and income from their normal spending and income, like from a part-time or full-time job, for instance.

The easiest way to avoid the headache of identifying business transactions is to use a separate bank account, or to take advantage of an influencer business management tool that puts all of your influencer transactions in one place. A tool like Lumanu’s payments feature is helpful because all of your income is right there in one, easy-to-read place. 

Independent Contractors

Independent contractors are just like sole proprietorships in many important ways. Many professionals like doctors, accountants, lawyers or tradespeople operate as independent contractors. This simply means that they work for other individuals or companies on a contract basis.

Independent contractors are considered self-employed and are subject to the self-employment tax. Social media influencers and creators also fall under this category of business. Most brands who pay influencers for their work set up each creator as a contractor within their accounting system.

Brands and businesses that hire independent contractors send out forms called 1099s at the end of each fiscal year. A 1099 conveniently lays out exactly how much income a contractor made from that business during the previous year. It’s important to note that business are only required to sent out 1099s to contractors who are paid more than $600 per year.

That means if you’re a influencer that works with many brands per year, and may make less than $600 per collaboration, the responsibility of keeping track of all income may fall onto you. It’s important to keep track of all of your payment information in one place.

Limited Liability Corporations

Some business owners take the extra step of forming a single-member Limited Liability Corporation (or LLC). An LLC is a more formal business entity that registers with the state. LLCs file taxes as a separate business and are taxed differently. If your business is an LLC, it’s best to seek the advice of a tax professional for assistance with filing your tax returns. 

Next, it’s critical to determine which purchases may be written off as legitimate business expenses. People like bloggers, Youtubers and social media influencers may have unusual, but legitimate expenses that may add up as tax deductions–reducing your self-employment tax liability. Some examples of common influencer expenses may include: 

• Cameras and video equipment
• Phone or laptop
• Home office or studio space and props
• Travel expenses (directly related to your business)
• Merchandise used for giveaways (this is a marketing expense)
• Software or apps (like photo editors, social media schedulers, etc.)
• Website hosting and expenses
• Office Supplies
• Professional fees (business lawyer, professional headshot photographer, etc.)

Sometimes it can be tricky to figure out what may be claimed as a valid business expense and what doesn’t. Whenever you’re in doubt, consult a tax professional. 

Here’s a list of essential tips all influencers should remember when filing their taxes this year:

Don’t forget to include products and other non-cash sources of income

When that fashion brand or jewelry designer sends you a free gift, it’s easy to think of it as “just a gift.” But, for influencers, this is part of your earned income. Any items that you receive from a brand in exchange for a review must be claimed as income using their fair market value. And don’t forget about sources of income like ad income, affiliate sponsored content, and live or online appearances as a part of brand partnerships.

Start early

Taxes are always more complicated for self-employed people than for traditional nine-to-five employees who get sent a W-2. Don’t wait until the last minute to start collecting your financial records, receipts and 1099 forms you may need. Make a plan for how you plan to file your taxes (e.g. which software to use). 

Use software tools and get help

There are a ton of software programs out there that can help you with filing your income tax returns. There are the “big names” we all like like Turbotax and H&R Block that offer tax software for a fee. Remember that additional fees might apply if you need the self-employed version of the software. It’ll also cost you to file your state returns. 

Read Also: What are Good Property Taxes?

The IRS also recommends several free tools on their website–however, they may not be powerful enough to handle your itemized deductions and supplemental income documentation. 

And don’t forget to take advantage of the tools you already have in place to help you. If you use a tool like Lumanu as a part of your influencer workflow, you’ll already have a huge head start by having a large chunk of your financial information in one place. 

Taxes don’t have to be a huge headache! With a little knowledge and the right tools, you’ll have your influencer business taxes filed in no time. 

How to Navigate Your Taxes As an Influencer

To put it simply, if you run an influencer business, you will need to file taxes. Social media influencers and content creators own their own businesses. Thomas Williams, EA and co-founder of Deducting The Right Way® states that “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, like with any other small business, “you are taxed on net income after all expenses are included,” according to 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 make money as an influencer, you must take it seriously and keep proper 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 while still being taxed on the income,” explains Crystal Stranger, EA and International Tax Director at GBS Tax.

Even if you don’t feel like you’re running a formal business, you should take it seriously, keep proper records, and be prepared to pay taxes on the revenue you generate. Here are a few expert recommendations to help you manage your taxes as an influencer.

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 a 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 “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.”

There are a lot of tax write-offs you can take as an influencer and small business owner; it’s important not to overlook any of them. 

Track Income and Expenses

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.”

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. “Being on top of quarterly taxes can save a lot of headaches and surprises when you file taxes the following year,” says Naam Wynn, a personal finance content creator on YouTube with 130,000 subscribers.

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.

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.

Bottom Line

There are many ways influencers (someone with the ability to persuade potential buyers because of their status, knowledge, brand, etc.) use social media to make income. You can make money from sponsored social media posts, digital products (e.g. downloadable workout programs, meal plans, etc.), podcasts, affiliate marketing, etc. But do you know how this income is taxed?

As an influencer, you most likely work as an independent contractor for the companies you promote. Independent contractors are considered self-employed, so you must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax required for self-employed individuals since you do not have taxes withheld from your paychecks. 

It is crucial to understand that even if you have another work that withholds taxes for you, you must still pay SE tax on any income earned as an independent contractor.

As an influencer, you may face complex state tax requirements. If you work for corporations outside of your home state, you may be required to file multiple state tax forms.

You should receive a Form 1099-NEC from each brand you partner with that paid you $600 or more. Projects under $600 should still be reported as income on your tax return, even if you don’t receive a 1099-NEC. 

If you earn income from YouTube, Instagram, or other platforms like AdSense, you will also receive a Form 1099-NEC for this income above $600.