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Social media has now become a constant part of our lives. During a recent survey, it was found that there are more than 3 billion social media users; that’s slightly more than one in three people on the planet!
Businesses of every size in every field use influencers (someone with the ability to persuade potential buyers because of their status, knowledge, etc.) to market their products and services.
This is one of the more common ways influencers make money. This is when a brand engages an influencer to create content featuring the brand and to share it with their followers.
More specifically, this can come in the form of eBooks, promotional flyers, or co-creating content with brands. Influencers can sell eBooks to their followers or get paid by the brand for each click or download.
A brand may rent space on an influencer’s page to promote an item via a click-through ad or an advertorial article.
Influencers can charge consumers to access content, collaborate with a brand to produce the content, or use the format for lead generation.
Now, let’s look at social media influencer tax, as an influencer, you are most likely being compensated as an independent contractor for the brands you work with. Independent contractors are considered self-employed, so you must pay self-employment tax as well as income tax. Self-employment tax is a Social Security and Medicare tax required for self-employed individuals since taxes are not withheld from your pay-checks.
As self-employed workers, social media influencers are usually required to file form 1099 and form 1040es. The latter is used for paying estimated quarterly taxes if their Federal tax liability is over $1,000 for the year.
Quarterly taxes or Estimated Taxes are meant for self-employed individuals or freelancers. These are the people who do not have taxes automatically withheld from their earnings, thus, they have to pay their taxes to the IRS throughout the year on a quarterly basis. These taxes are used to pay:
In addition to these, freelancers also have to worry about:
Apart from the basic hassle of filing the SE tax, there are quite a few benefits of being self-employed.
As a social media influencer, you can claim a number of expenses for your daily work. This helps to reduce your taxable income, leaving you with a lower tax bill. Some of the common social media influencer tax deductions include:
The taxation process is fairly straightforward when it comes to income generated by paid partnerships and organic content, however, it is an entirely different story when it comes to ‘payments-in-kind’.
If you are an influencer or YouTuber and receive a ‘gift’ such as a car or a holiday in return for particular deliverables (goods or services provided upon the completion of a project) it can be taxable if the gift has an obligation attached to it. For example, if you receive a free stay at a resort or hotel for the purpose of promoting it through your social media presence. However, if it is just a gift of a gracious manner then it is nontaxable.
Aside from the above-mentioned common freelance tax deductions, here are some of the top social media influencer tax deductions:
As a social media influencer, if you happen to have your art studio in a spare bedroom of your home, you may claim the home office deduction. The IRS insists any studio you claim is used exclusively for your art business, and you have to prove that's where you do most of your work. The deduction amount relies heavily upon how much of the house is devoted to your artistic work.
You can deduct the business percentage of your utility payments, including heat, lights, power, telephone service, water, and sewerage. However, if you pay for a utility or a service that does not aid your business, you won’t be able to use that for a tax deduction.
Wages paid towards contract labor are subject to freelance tax deductions. This includes any wages you paid to a photographer or videographer on a contract basis.
Social media influencers are allowed to deduct all expenses associated with business travel. These include meals (Now 100% deductible), hotel & lodging, reasonable tips, dry-cleaning, phone calls home, etc. Travel could include expenses related to gallery visits, openings of shows, delivering artwork, art fairs, etc
Any money you spend on promoting your work can be deducted. Advertising expenses include print ads, business cards, fliers, sponsorships, Facebook and digital ads, as well as your website hosting and creation costs.
Claiming a deduction for clothing is somewhat a gray area unless it’s a proper uniform. Since the IRS strictly states if the clothing has no use outside of your employment, then only it will be considered a deductible. But fashion influencers often wear some outfits & accessories strictly for shooting purposes, therefore, they can also be considered tax-deductible. Plus, they can deduct the expenses associated with their clothes such as laundry and dry cleaning.
When it comes to social media influencer tax, you have to pay Self-employment taxes since you don’t receive the standard W-2 tax forms that traditional employees receive at the end of every year.
So, you have to file your taxes via form 1099. Here, you not only have to report your income but also the monetary value of any products, merchandise, or services provided to you in exchange for promotion on social media.
To calculate your tax, you need to consider a few things: your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. When it comes to paying your taxes, it is always better to rely on calculation rather than estimation.
One of the most fundamental elements of managing your taxes is to be organized. Maintaining a spreadsheet is a hectic task and is somewhat equivalent to guesswork. Here, automating your expenses is in your best interest. Apps like FlyFin can help ease your burden.
It is an AI-powered freelance tax calculator that works around the clock and scans through all your expenses to provide you with the most accurate deductions all the while ensuring that you don’t have to pay a penny more than what you actually owe. Thus, reducing your chances of underpayment or overpayment of tax.
Businesses of every size in every field use influencers to market their products and services. There are many ways influencers use social media for profit. However, as an influencer, you are most likely to work as an independent contractor for the companies you promote, and in turn, you are required to pay quarterly taxes.
The mere task of paying these quarterly taxes can be daunting however, tax calculators like FlyFin can help ease your burden. Automating your expenses can lower your taxes and maximize your savings.
FlyFin CPA Team
With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.