So, You’re an Influencer. Here’s How to Know if You Can Deduct Business Expenses
Are content creators allowed to deduct business expenses?
In a social media-driven landscape, content creators are fueling a whole new economy. There are more than 50 million content creators, though just roughly 2 million have managed to turn their online hobbies into a full-time job. But whether the content centers on uploading creative Instagram stories, or connecting with brands for a sponsored TikTok post, can this new generation of influencers write off any tax expenses?
The answers may surprise you.
Content creators who earn a profit are considered self-employed in the eyes of the IRS — even if the work is part-time. That means influencers are responsible for paying taxes on their earnings, similar to a freelance contractor. In fact, you’ll need to report your income — including from ad revenue, brand partnerships, merchandise, and more — on a Schedule C tax form, even if your online venture lost money.
Now, here’s the catch: as a content creator your profit motive matters.
If you’re just having fun, sharing your expertise online with a handful of followers without any income, you’re not likely to be able to deduct business expenses. But if you start to gain a following, or link up with a brand to promote their products, as well as your business, you have an opportunity to deduct business expenses. Important to note, whether it’s for fun or for profit, you’ll still need to report all of your earnings to the IRS.
Still, many content creators are missing out on deductions that could save them money on their taxes. While your mileage may vary, if you’re a content creator, it’s worth investigating what expenses might be deductible.
So how do you know if the content you create is eligible for deductions and how do you deduct qualifying expenses? Read on, and I’ll show you some examples of expenses that can be deductible.
Are your business expenses deductible?
Let’s start with the foundation. The Internal Revenue Code, Section 162(a) allows for “a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.”
In order to use this section to deduct business expenses, you need to be producing content for your business or trade. This means that the critical question is not “can content creators deduct expenses?” Rather, the question is “does a content creator consider themselves as ‘carrying on a business or trade’ when producing their content?”
Do you consider yourself to be carrying on a business or trade as a content creator? Pause here and really consider the purpose of your content. If you are not creating content as a business — or in the game to earn money — then you probably don’t qualify for these deductions. However, if your immediate thought is “absolutely, my content is my business,” then you may be able to deduct business expenses. Still, I would tell you to proceed cautiously through the following information.
Many content creators are missing out on deductions that could save them money on their taxes.
What’s the difference between a business and a hobby?
For content creators, freelancers, or anyone else who plans to use Schedule C for business expense deductions, the IRS relies on the form to determine who is carrying on a business for profit — or who is filing profits or losses on behalf of a hobby.
Why? If someone is filing a Schedule C and indicating losses year after year, the IRS raises a red flag and may consider that individual engaging in tax abuse. The IRS states these “changes are needed to prevent taxpayers from continually deducting losses in potentially not-for-profit activities to reduce their tax liabilities.”
There are nine factors that the IRS uses to determine whether someone is carrying on an honest profit motive or just writing off expenses for a hobby. They include:
- The manner is which the taxpayer carried on the activity;
- The expertise of the taxpayer or his or her advisers;
- The time and effort expended by the taxpayer in carrying on the activity;
- The expectation that the assets used in the activity may appreciate in value;
- The success of the taxpayer in carrying on the other similar or dissimilar activities;
- The taxpayer’s history of income or loss with respect to the activity;
- The amount of occasional profits, if any, which are earned
- The financial status of the taxpayer; and
- Elements of personal pleasure or recreation.
Under the Internal Revenue Code, Section 183, the code states “In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction is allowed.”
So, how do you know if your expenses as a Content Creator are deductible? The short answer is you need to be creating that content for the purpose of getting paid or for profit. That sounds simple enough, but it can be tricky in practice. To help you understand a little better, I’ll take you through a couple of examples.
YouTube Dad decided to make YouTube videos showing people all the things he wished he had learned from his Dad growing up. These videos started out as small projects and eventually grew into massive home renovation videos.
Within a year, YouTube Dad’s video began to amass a strong following, but he was still focused on maintaining his full-time accounting job — and wasn’t interested in becoming an influencer full-time.
Despite the increasing personal costs of continuing to create his videos, YouTube Dad made a choice not to view the channel as an extra revenue stream; he just wanted to help countless people learn the basics of life.
So, is YouTube Dad able to deduct his hobby expenses?
Likely not. Again, for the IRS, it’s the motive behind the content that’s important. Why did YouTube Dad start producing his videos? His motive was to show people what he wished he had learned from his Dad, not things he could show people and be paid to show them.
Now, if YouTube Dad were to change his mind and quit his full-time job to turn his popular videos into a content creation business, start collecting ad revenue, write and sell a book, or pursue brand sponsorships to grow his fan base, YouTube Dad would now be in the business of making a profit — and thus eligible to deduct business expenses.
Remember, you are only able to deduct expenses related to your business or trade.
Emme’s Bold Prints
Emme loved bold and vibrant wardrobes, but most of all she loved making clothes from thrifted fashions. She worked as a sales associate at a retail store, but soon fell out of love with such a demanding job that did not allow her to express her creativity.
Emme decided that the clothes she made were better than any of the clothes that were in the store where she worked and if they could sell clothes then she could too! Emme decided she would quit her job and start Emme’s Bold Prints.
Within five months Emme had released her first collection and held a virtual fashion show made of Tik Tok reels of different fashions she had created. Unfortunately, no one loved Emme’s fashions, and she made no money at all. Due to the amount of debt she had obtained in creating and producing her first line of clothes, she had to go back to work as a sales associate.
Is Emme able to deduct her expenses?
It is likely that Emme is able to deduct all expenses related to creating her first line of clothes, even though she made no money at all. Can she really deduct all expenses? Yes! She can deduct clothing patterns, supplies, ads, website hosting, and more.
Because Emme had intentionally decided that she would start a clothing line to make money, her motive was profit. The IRS does frown when a business does not make any money, and this could trigger an audit.
However, as long as Emme deducts expenses that were ordinary and necessary for her business, she is likely to pass the audit without much sweat. Her business was legitimate and not just a hobby even though she enjoys making clothes.
Masterpieces by Chris
Chris was an artist who was sensitive about his art, but that did not stop Chris from sharing it with the world. Chris knew that his art would change someone’s day if they laid eyes on it because his passion transcended through his painted canvas.
One day Chris decided he would start posting his art on street corners to brighten others' day. Before long, passersby started to buy Chris's paintings. Now, Chris was not only fulfilling his desire to share his art with the world but also making some extra cash.
Is Chris able to deduct his expenses?
No. Chris is not able to deduct his expenses because he was not selling his paintings for profit. Chris had decided to sell his paintings because of compulsion, not for profit.
The IRS makes clear that just because you are compelled to share something or sell something does not mean that activity qualifies for anything other than a hobby.
Building your online business? Deductions may be right for you
Content creators who are creating content for profit are likely able to deduct ordinary and necessary expenses related to their content. These deductions aren’t limited to just one expense — they can deduct all of the expenses related to producing their content.
However, if the content is not for the purpose of making money, but instead to inspire or educate, then no, you should avoid deducting any of those expenses because they are likely to trigger an audit.