Tax Considerations For Digital Creators

Tax Day is Coming!

Yes, Tax Day is coming up, and taxes are simply a fact of life and certainly a fact of doing business. If you are a creator and earning money, you are doing business and going to need to pay the taxes on the money you earn. This is regardless of whether you have another gig… like a full-time job as well. However, there are ways to keep more of your money and not pay it to the government.

This article discusses how indie creators should deal with taxes.

Disclosure: This article is not intended as formal tax advice.  

Three Considerations Creators Need to Know for Tax Filings 

We are not Certified Public Accountants. Every situation is different, so before you file, discuss these and any other issues with your tax professional.

#1 You Need to Declare All of Your Earnings

Yes, regardless of how casual some ways of making money may seem, you need to declare all your income. Even if the money you earn from your creator gigs may seem like a hobby in some cases, the government considers this income and must be reported. Much of this can end up being self-reported (because the person or company may be required to file a 1099 (independent contractor income tax form), but they didn’t. You will, in most cases, still must report your income. There may be some cases you don’t have to report income if your total income is under a certain amount, but most times, you will have to. Being a creator, you often see income from many different sources. It may be from a creator pool or brand deals. All of this must be reported.

So, hopefully, you have kept good records throughout the year on the income you earn and where it came from.

#2 The Home Office Deduction

Because of the pandemic, there have been many discussions in the past few years about the Home Office Deduction. The Home Office Deduction allows you to take a deduction (not a tax credit) for the percentage area of your home that you use for work. This applies to creators differently. If you are an employee of a company and you work from home, you cannot use the Home Office Deduction to reduce your taxes. But if you are self-employed, like many creators, then you can take advantage of the home office deduction. If you are both self-employed and an employee of another company, can you still take the deduction? Well, that’s going to be a question for your CPA.

Moreover, the IRS has made it clear many times that the Home Office Deduction is a red-flag deduction, meaning that it is more heavily scrutinized than other types of deductions on your tax return. Remember, you can’t take your entire home as a deduction, only a percentage portion of your work area. Many creators have other offices or studio spaces that they work out that are not part of their home. It’s rare that, in that case, you can take both as a deduction.

#3 Other Deductions Creators Can Take

Deductions are how you can reduce the amount of taxes you have to pay. For creators, this may be very different than a regular W-2 employee. Generally, the equipment you use to create your work can be deductible. Some of it may be a capital investment into your business (which is depreciated over time rather than deducted), like computer equipment (check with your CPA), or it may be immediately deductible in the year it was purchased. This can be things like microphones and headphones for podcasting, the cell phone you use to create videos, or even your cell phone bill. You may also be able to deduct your home internet bill each month as a business expense. The key is to look around and see what you are using for your creator business to be able to deduct from your taxes. Like all these things, make sure to discuss this with your tax professional to maximize your deductions and reduce your taxes.

Summary

Tax season can be a draining experience. However, if you’re prepared, you’ll be able to face it with confidence. Hence, these are the three considerations that make the process much easier.

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