Last year, my then 10-year-old granddaughter said she no longer wanted to be a veterinarian when she grew up. She wanted to be an influencer instead. (Now she wants to be a chef, so I don’t think she has a set path yet.) But that declaration introduced me to the very serious world of influencers.
An influencer is someone in a niche or industry who has sway over a target market. An influencer could be a celebrity, an industry expert, a thought leader, a popular social media personality, blogger or content creator.
Most influencers work in social media these days and some of them make a whole lot of money. A couple of years ago I did a tax strategy consultation for a 17-year-old YouTuber. He started out with some really helpful videos on how to solve some common online app issues and later developed several courses.
He became online famous for his courses. When he was 17, he was still in school and living at home. And he made a little over a half million dollars that year.
There is serious money to be made as an influencer if you hit the market right with the right messaging for your group.
But, what about the taxes?
Being an Influencer Means Having a Business
If you don’t form an entity for your influencer business, you’ll file as Schedule C (Sole Proprietorship).
Even if you don’t form a business structure like an LLC or S Corporation, I recommend you set up a separate bank account and use a credit card just for the business.
You’ll need to track income. Most influencers have income from different sources including sponsored posts, brand ambassador roles, affiliate marketing commission, ads, and free products.
If a free product is worth more than $100, it would be considered taxable income. If it’s less, it’s considered de minimus and is not taxable. Keep a list of free products that you receive with the current fair market value of the item. That will be income you add to your cash and cash equivalent income.
Tax Forms You’ll Receive
If you make over $600 in a year, you’ll receive a Form 1099-NEC from the company. And if you make over $600 in a year from a third-party processor, you’ll receive a Form 1099-K.
This is where it can get confusing. The same income can be reported to the IRS twice, but that doesn’t mean you have to pay double the taxes. That’s why having a separate checking account for your business is so important.
Calculating Gross Income and Taxable Income
Keep your personal income and expenses separate from the business income and expenses. You’ll need the total of deposits to your checking account to determine your income. If you made some loans to the business, make note of those because those will not be taxable income. And if you have received gifts to your business that are more than $100, then make sure you add the fair market value.
That will give you your gross income.
Now, what’s deductible?
You’ll have some traditional deductions such as:
Self-employed medical insurance premium
Business related education
Subscriptions and software
Cell phone plan
And then you will likely have expenses that are directly related to your business. In order to have a business deduction, the expense must be “ordinary and necessary to the production of income.” You may have backgrounds in your videos. That would be deductible. You may travel to create a certain ambiance for your videos and to research new topics. The cost of that would be deductible.
What do you spend money on currently that might be deductible? Leave a comment to the post if you have a question on something that might be deductible.
Can You Deduct Expenses Related to Your Appearance?
In most cases, you can’t take a deduction for hair, make-up, manicures, clothing and the like. But if you’re an influencer, you may be able to take more deductions than others can.
If an expense is directly related to a specific project, it’s probably deductible. For example, if you’re trying out a new hair product, hair style, or even just getting a haircut in order to work in a special promotion, you might have a deduction.
If you have a fashion or lifestyle content, you may be able to take a write off for your outfits and shoes. If you are creating fitness content, workout clothes, equipment, and sneakers could be deductible. If you need a special outfit, it could be deductible. For example, if you have to buy a designer gown for a red-carpet event, you have a deduction if you can prove it’s not something you wear in your regular day-to-day life.
Remember, though, your influencer business must really be a business. The IRS isn’t going to let you take the deductions if they decide it’s just a hobby.
Got a Tax Question? Here’s how to Get Your Tax Question Answered.