Social media has made a new kind of famous person: social media influencers. The large groups of people who follow influencers on Instagram, YouTube, and TikTok are used by them to sell things. Influencers can make a lot of money, but they need to know how their taxes will change because of it.
This is especially important for people who live in Newport Beach, where accountants are very skilled at helping social media influencers with their unique financial needs. So go ahead and schedule a consultation with a Newport Beach accountant today!
What is considered income for social media influencers?
Influencers can make money in a number of ways, such as:
- Sponsored posts and videos: Brands pay influencers to make content about their goods or services, like sponsored posts and videos.
- Affiliate marketing: Influencers get paid to promote goods or services and include an ad link that can be tracked in their posts.
- Brand ambassadorship: Influencers work with brands on a long-term basis to promote them on their social media accounts. This is called brand ambassadorship.
- Selling merchandise: Some influencers make and sell their own things, like clothes and other items.
Understanding the tax implications of influencer income
Most of the time, social media influencers are taxed as self-employed. In other words, they need to pay taxes on their own money, like Social Security and Medicare taxes. Influencers must also pay income tax on their net gains, which are the amount of money they make after taking out the costs of running their business.
Some common business expenses for influencers
You can subtract a number of business costs from your taxes as an influencer, such as
- Business travel: This includes the prices of getting to events in your field, meeting with brands, or making content.
- Home office costs: If an influencer uses part of their home for business, they can claim a piece of their rent or mortgage, electricity, and internet fees.
- Equipment: This includes the price of cameras, computers, editing software, and other tools that are used to make content.
- Props and supplies: Influencers can write off the cost of clothes, tools, and other items they use to make content.
- Marketing and advertising: This includes the cost of selling and marketing their influencer business on social media and other sites.
- Professional fees: People with a lot of influence can write off the cost of paying accountants, lawyers, and other experts.
Keeping track of income and expenses
It is important for influencers to keep track of the money they make and spend. This is going to help them not only do their taxes right but also keep track of how much money their work is making.
Someone with a lot of influence should keep track of all the money they make and spend on their business by using financial software or a calendar.
How to avoid hobby tax classification
The IRS might see work as an influencer as a hobby instead of a business. You can not deduct hobby prices from your taxes, so this could make your taxes worse. Influencers should show that what they do is for money so that people do not think it is a hobby. These things are taken into account by the IRS:
- How often and for how long the person does what they do
- How much time and work the person puts into their work
- Having the expectation of making a profit
- The influencer’s knowledge or experience
Best practices for social media influencers
Influencers should keep their personal and business money separate, file their taxes every three months, get help with their taxes, and mark free stuff they get as income that needs to be taxed. These are some of the best ways for social media influencers to pay the least amount of taxes and make the most money at their job.
