Planning a tax strategy as a content creator can mean the difference between your dollars in your pocket, or the IRS’.
So many of us have no idea where to even start with influencer taxes.
Can you brave doing it yourself or should you hire a pro? Which deductions can you take? How can you reduce your taxable income?
These are questions we’ve heard countless times from creators. Here’s what some of them have had to say:
While taxes may be complex they don’t have to be complicated.
If you’re wondering how to make influencer taxes a little less complicated, our strategy starts with easy steps you can start today:
- Understanding the taxes you’ll owe as a content creator
- Creating an LLC, S-Corp, or other business entity
- Investing into business and personal retirement accounts
- Maximizing content creator tax deductions
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If you're interested in a review of your specific situation, schedule a free, no-obligation consultation today!
We provide tax preparation, monthly bookkeeping, and financial planning services specifically for content creators.
What taxes will you owe as a content creator?
First off, you need to know exactly which taxes you’re liable for as a content creator.
Primary influencer taxes include:
- Personal Income tax
- Self-employment tax
Personal Income Tax
Personal income taxes are what everyone thinks of first.
These are paid through progressive tax brackets, meaning that as you make more money, you pay more taxes.
Here are the tax brackets for 2023 & 2024.
Example:
Say you make $100,000 a year. This will take you through four tax rates in 2023:
- The first $11,000 of this is taxed at 10% = $1,100
- The next $33,725 is taxed at 12% = $4,047
- The next $50,650 is taxed at 22% = $11,143
- Finally, the last $4,625 of your $100k income is taxed at 24% = $1,110
Self-Employment Taxes (FICA)
Self-employment taxes are a bit different.
The total FICA tax rate is 15.3%, which most Americans are used to splitting 50/50 with their employer (7.65% each, deducted automatically from each paycheck).
However, as a content creator you are a self-employed business owner. This means you are both the employee & the employer and you’re liable for the full 15.3%.
This is why taxes can be a huge pain for creators.
I mean, an extra 15.3% tax on top of personal income taxes comes as a shock if you’re not expecting it.
Going back to our example above:
If you make $100,000 a year, you would owe $15,300 in self-employment taxes.
For the example in total,
- Personal Income Tax – $17,400
- S/E Tax – $15,300
- Total Tax Owed = $32,700
How can creators & influencers reduce taxable income?
When you’re first starting into planning a tax strategy, we generally look at 3 big areas.
- Do you have a business entity setup, and is it appropriate for your situation?
- Are you contributing to retirement accounts?
- Are you taking advantage of all the tax write-offs available to you as a content creator?
1. Creating an LLC, S-Corp, or other business entity
One of the most common questions we’re asked is “Should I start an LLC as a content creator?”
We have some thoughts.
LLC
If you’re a new creator with no income, the time and cost to start an LLC might not be worth it yet.
However, when you start making money, there are both legal and tax benefits to structuring your content creation into a business entity.
Many content creators naturally start as sole proprietors, but as your income grows, you should consider forming an LLC.
Limited Liability Companies (LLCs) provide liability protection, separating your personal and business assets.
A common misconception is that being an LLC will get you more tax write-offs. This is not true!
S-Corp
This can be true for S-Corporations though.
For example:
As an S-Corp, you can pay yourself via W2 salary and owner distributions. Owner distributions are taxed at your personal income tax rate, but aren’t subject to self-employment taxes.
This is a huge help in reducing that $15,300 owed in our example above.
Of course, with those added tax benefits comes more administrative work.
Where LLCs are typically easy to maintain, S-Corps require a few extra steps. This is why you don’t want to elect S-Corp too early, or if it’s not appropriate for your situation.
If you’re curious whether an LLC or S-Corp is right for you, we highly recommend consulting a CPA tax professional, and an advisor like us!
2. Investing into business and personal retirement accounts
Did you know you can start investing AND reduce your taxes while you’re at it?
Investing into both business and personal retirement accounts is generally a strategic move for creators of any size.
They don’t come with minimum income requirements, are typically low-cost to set up, and help you save for the future.
Depending on which business entity you setup in step #1 can also help determine the right retirement accounts to open.
Investment experts (like us!) can help you get started.
Business Retirement Plans
If you’re a team of one, popular retirement accounts your business can contribute to include the Solo 401(k) and SEP-IRA.
- A Solo 401(k) is ideal for those with no employees, due to its high contribution limits.
- A SEP-IRA works for teams of one, and also for creators in a partnership and/or with employees.
If you’re an S-Corp, have employees, or some combination of the two another option is a Safe Harbor 401(k). There are many different varieties of 401(k) plans, and they generally come with higher costs and more administrative duties to maintain, but can be a huge benefit as your business grows.
How to reduce your taxes with a business retirement plan:
Continuing our example, your marginal tax rate is 24%.
This means that every dollar you contribute to a tax-deferred retirement plan, like a SEP-IRA, reduces the taxes you owe by roughly 24 cents.
So, if you make $100,000 a year and have opened a SEP-IRA, your business can contribute up to 25% of your compensation.
With a $25,000 contribution, you’d reduce your tax bill by roughly $6,000.
Individual Retirement Accounts
Personal retirement accounts, like Traditional or Roth IRAs, should also be part of your tax and investing strategies.
Diversifying between personal and business retirement plans can provide both flexibility and tax advantages.
There are two types of IRAs:
- Traditional – pre-tax, which is similar to a 401(k) or SEP-IRA
- Roth – after-tax
The tax benefits of a Traditional IRA work just like a 401(k) or SEP-IRA in the example above. Each dollar you contribute reduces your total taxable income dollar-for-dollar.
The tax benefits of a Roth IRA are the opposite. Using our marginal tax rate of 24%, a contribution to a Roth IRA would increase your tax bill by 24 cents for every dollar.
Paying more in taxes may seem counterintuitive.
But in this case, say you’re expecting your business to grow and push you into the next tax rate.
It may be beneficial to contribute to a Roth and pay the taxes now, then all your investment earnings in the account are never taxed again.
Both IRA types have key financial steps for content creators to take in December.
3. Maximizing Content Creator Tax Deductions
Maximizing tax deductions is another huge opportunity to optimize taxes for content creators.
Unfortunately, there’s no direct list of write-offs for influencers from the IRS.
So, understanding which tax write-offs you can take as a creator at first will utilize the general tax code.
This is why it’s super important to work with a CPA tax professional so you can ensure you’re maximizing the specific deductions available to you.
Content Creator and Influencer Tax Write-Offs
Based on the general tax code, here are a few examples of major expenses you may be able to write-off:
Equipment
Pretty much every content creator requires some sort of equipment to do their job.
Whether that’s a camera, microphone, lights, or a new computer, these are all expenses required to run your business and can be deducted from your taxes!
Technology
Most creators heavily rely on tech to do their job too.
Expenses like these can either be written off in full or at the percentage of business vs. personal use to help lower your tax bill:
- Internet
- Website
- Editing Software
- Cell Phone
- Other software or apps you use to run your business
Home Office
If you have a dedicated office space in your home, you can deduct your home office usage. This is typically calculated by dividing the square footage of your office by the total square footage of your home.
Using that percentage, you’re able to write off your office’s portion of expenses like rent or mortgage and utilities. Don’t forget to include the costs to furnish and decorate your home office, too.
Other Write-Offs
Every creator is unique, so unfortunately there’s not a blanket list of tax write-offs for content creators.
But, there may be some other expenses you can consider as business expenses like:
- Professional services
- Travel
- Meals
- Automobile
- Ads
How We Fit In
As a CPA & financial planner, we offer an arsenal of services.
Starting with tax return preparation and monthly bookkeeping, we’ll get your records organized to make informed decisions.
Then, we translate this into financial planning for the short- and long-term.
Contact us if you want to get some free advice on your situation!
Many creators DIY’ing their taxes will miss part or all of the strategies mentioned above.
Maybe you don’t feel confident something is actually a business expense, or that you can’t manage a retirement account.
We highly recommend building a support team to advise you on the appropriate path for you because mistakes on a tax return can be costly and stick with you for years.
At 1Up Financial Advisors we are a fiduciary to you. As a client of ours, this means that we’re legally obligated to put your best interest first.
In Conclusion
Navigating tax planning as a content creator can be complex. But, it doesn’t have to be a headache!
Creating a business entity, investing into retirement plans, and maximizing content creator tax deductions are pivotal steps.
If you’re interested in a review of your specific situation and how these strategies can benefit you…
