Do TikTok Stars and Other Social Media Influencers Have To Pay Taxes?
Millions of people consider themselves influencers or content creators. The billion-dollar industry has allowed some young adults to become wealthy practically overnight. As this trend continues, many fledgling TikTok stars and other social media influencers might wonder whether they have to pay taxes on their earnings.
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Regardless of your age, you should always consult with a tax professional, particularly if you have an unusual source of income. Influencers often receive multiple streams of revenue, including money from sponsors, products and promotions. Any income a creator receives may be taxable. Failure to properly file taxes can have serious consequences, including substantial fines and penalties.
Tax Requirements for Influencers
The threshold for determining whether you need to file taxes will depend on several factors, including your age, filing status and income. The levels change each year, so it is important to discuss your situation with a tax professional.
For 2022, a single person under the age of 65 making $12,950 or more is required to file taxes. However, many influencers and content creators are self-employed. If you made $400 or more in self-employment income, you must file taxes.
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How Are Social Media Influencers Taxed?
Unlike some employees, social media influencers and TikTok stars rarely receive W-2 forms. In some cases, they might not receive any tax documents at all. Most of the time, though, influencers receive 1099 forms from anyone who has paid them money.
If you receive a 1099 form, you likely need to file taxes. The majority of companies send 1099 forms to non-employees in early February. Generally, influencers receive 1099s (e.g., 1099-NEC, 1099-K or 1099-MISC) if they make $600 or more from a company.
It is important to note, however, that you still might be required to file taxes even if you do not receive a 1099 form from a sponsor, endorser or other businesses.
Should Influencers File as Self-Employed?
Many influencers opt to file as self-employed or independent contractors. One of the downsides of being self-employed is that you do not have taxes taken out of your earnings. You will need to prepare to pay taxes when you file. Once you reach a certain income level, you should pay estimated taxes to help offset the financial burden.
A tax professional can help determine how to make the most of your situation, including determining whether you should incorporate or form a Limited Liability Company (LLC) to avoid paying higher taxes. There are advantages and disadvantages to becoming a business, so you should always speak to a professional before you file.
Common Deductions for Influencers
Because TikTok stars and influencers usually do not have taxes taken out of their income, they should be tracking their expenses carefully. Expenses related to their content creation, promotions or endorsements may be tax deductible.
Common deductions for influencers might include photography equipment, travel expenses, copyright fees, software costs and more. If you are a creator, you should be tracking all of your income and expenditures. Many people choose to use a bookkeeping program like QuickBooks to help them stay on top of their accounting.
Hobby vs. Business
Both hobby income and business income are taxable, but you cannot deduct hobby expenses. The IRS looks at several factors to determine whether an income-generating activity is a hobby or a business.
For instance, you can look at whether the activity is carried out in a “businesslike manner” and whether you can maintain accurate bookkeeping records. Furthermore, you can evaluate whether you depend on the income you generate for your livelihood or whether the activity makes a profit.
Activities that generate large amounts of income, require bookkeeping and take a considerable amount of time are less likely to be classified as hobbies. Hobby activities are usually done without the intention of making a profit.
Final Thoughts
The key takeaway is that social media influencers who make a profit likely will need to file taxes. Assuming that influencer-generated income is not taxable is a fallacy and could result in legal problems. Plan ahead and file your taxes on time to avoid penalties. In order to minimize the tax implications from earned income, you should consult a tax professional.
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