Friday Feb 03, 2023

TikTok Taxes: What Influencers Need to Know About Filing Online – PCMag

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The internet—and specifically, social media—opened up a whole new world of money-making ventures, and millions of people have climbed on board. The COVID-19 pandemic accelerated that movement. Whether by choice or necessity, millions more joined the ranks of individuals chasing income—and sometimes, fulfillment—during their off hours.

The entrepreneurs who have embraced these side hustles, and sometimes parlayed them into full-time businesses, are everywhere. Instead simply translating an office job into a private gig—accountants working from home as tax preparers, for example—people are just as likely to have a full-time job in one field and take on side gigs doing something totally unrelated. A plumber might make YouTube videos of his stand-up comedy. A retail worker may want to model and so builds her reputation as a fashion influencer on Instagram. A school teacher could also be a workout enthusiast, building a base of OnlyFans subscribers.

These influencers all have three things in common. They have to pay income taxes on those on-the-side dollars. They need to know what a legitimate business expense is to offset that income. And a lot of them don’t know how.


A New Tax Form

You probably didn’t think about taxes when you took on your new venture. You just wanted to see if you could make a little money doing something you love and have a flexible schedule doing it. But now that tax prep time is rolling around, you have a list of income and expenses, a Schedule C, and a lot of questions.

The tricky thing is you won’t know whether the business expenses you claim are acceptable to the IRS unless you get audited and have to produce receipts. All the IRS wants on your 1040 and related forms and schedules are numeric totals. 

Hang on to your expense documentation for three years after a filing date—longer if there are any irregularities, such as understated income, overstated property values, or a bad debt deduction.

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Keep in mind, too, that any freebies you get from vendors, like cosmetics and hair products for a brand influencer or power tools for a woodworking YouTuber, are expected to show up on your tax return as income.


Is It a Business or a Hobby?

The IRS doesn’t want a Schedule C from you unless you’re actually operating a business, not just indulging a hobby. “A business operates to make a profit,” says Barbara K. Blacklidge, an Enrolled Agent (EA) who spent 16 years as a tax preparer for H&R Block. “People engage in a hobby for sport or recreation, not to make a profit.”

The IRS also looks at your track record over time. If you realize a profit in at least three out of five consecutive years, the agency will presume that you are engaged in it for profit, and your returns shouldn’t throw up any red flags, depending on the expenses you’re claiming.

If you still think the lines are blurred after considering your tax status, you can consult the IRS’s nine questions to consider. It may give you a better idea of the agency’s view of the difference between a business and a hobby.


(Photo: ConvertKit / Unsplash)


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Blacklidge has been a Tax Expert for JustAnswer for the last ten …….

Source: https://www.pcmag.com/how-to/tiktok-taxes-what-influencers-need-to-know-about-filing-online

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