Making money on social media? Don't forget your taxes.
Think you have what it takes to become a social media influencer? According to a new social salary calculator, here is what it takes to make $100,000 a year on these popular platforms:
- YouTube: minimum of 1,000 subscribers and 24,000,000 yearly views
- Instagram: minimum of 5,000 subscribers and 308 sponsored posts a year
- TikTok: minimum of 10,000 subscribers and 270,000,000 views a year
Being an influencer on social media can be a lucrative career, but it also comes with its own set of tax rules. With the emergence of new ways to make money online, it's important for influencers to know how taxes work. They need to also stay up to date on any changes in the law that could affect their bottom line. That's why we've put together this guide on how social media influencers pay taxes.
Since influencers work for themselves, the first step is to understand the basics of filing taxes as an independent contractor. Social media income is generally subject to self-employment tax and both federal and state income taxes. Influencers are typically required to file an annual return and pay estimated taxes every quarter. The IRS recommends that self-employed workers make quarterly payments if their tax liability is $1,000 or more. Those who don't pay enough taxes throughout the year may have to pay a penalty for underpayment.
Read more: we researched free tax software and put together a list of the best options here
Generally speaking, all income earned must be reported even if it is considered "passive" or "unearned" income (i.e., brand deals or sponsored posts). Since taxes are not automatically withheld from the self-employed paychecks, they are responsible for paying taxes on their own. They get a Form 1099-NEC for any payments over $600 that they receive from a platform or brand. It is also important for self-employed workers to keep track of all expenses related to the business and report them on their tax return in order to take advantage of deductions and credits. Self-employed individuals can open their own retirement accounts, as well.
How social media income is taxed
The self-employment tax rate is 15.3%, which consists of both 12.4% for Social Security and 2.9% for Medicare. This is similar to the payroll taxes that W2 workers pay. Income taxes will be based on the tax bracket you are in. Both of these taxes are based on "net earnings," which is your gross income minus your business expenses. If you are losing money, then you will generally not have to pay taxes.
If you do make money via social media and expect to owe taxes of $1,000 or more when your return is filed, then you may send the quarterly estimated tax payments with Form 1040-ES by mail, online, by phone, or from your mobile device using the IRS2Go app. You will also have to file a Schedule SE (Form 1040 or 1040-SR) form for any payments over $400 that you receive from a platform or brand.
Your annual return will depend on the type of business entity you use. If you are a sole proprietor, to file your annual tax return, you will need to use Schedule C to report your income or loss. If you are using a different entity, contact a tax professional to help you file your return correctly. Penalties for not paying your taxes can range from fines to criminal tax evasion charges. It is important to stay on top of your accounting so you are aware of any potential liabilities.
Filing taxes as a social media influencer can feel overwhelming at first, but knowing the basics can help simplify the process considerably. Staying organized and up to date with current tax regulations will ensure that you never miss out on deductions or find yourself facing hefty penalties due to incorrect filings. With these tips in mind, paying taxes as an influencer will become easier each year!
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