The 5 Most Overlooked Tax Deductions for Content Creators
Are you getting the most out of your tax deductions? Did you know you can deduct things like bicycle commuting, parking & tolls, and professional club memberships? Learn all this and more during our 30-minute webinar with Ro Williams!
We want to create a community around small businesses, so at the end of the talk, we’ll open it up to live questions from attendees! Tell us about you, your business & what you want to know.
Ro Williams is the Tax Research Manager at ComplYant. She is an experienced tax professional and has previously worked for both International Law and Public Accounting firms.
Note: This topic covers U.S. business taxes only.
How much money should I make before I start tracking?
The super important thing about carrying on a business trade is that you start tracking it as soon as you start it. That's why it's extremely important for you to have a business bank account that's dedicated to just that business because that's another way for you to file an audit. An audit looks at nine factors and one of those factors is how you are actually carrying on this business or trade. If you're carrying it on like it's a hobby and you don't have to put much care or time into it, if you're ever audited, then that's a reason for the IRS to deny each expense. And also, on top of that denial, you'll receive a penalty and interest. So, it's super important that if you start a business, you start acting as though it's a business the day you started, and maybe you don't start a business directly as a business. Remember the YouTube brother, he started it to help people, but that transitionary period where he decided Hey, I can actually make money off of this. During that period is when he definitely needs to set the tone that this is a business that I'm carrying on, it's a business and I'm taking care of it like a business owner would take care of their business.
Who is considered an employee? If my kids or friends help me record, do I have to consider them as employees or contractors?
To help record or shoot like if it's a photographer or videographer. And maybe you guys can write up an agreement showing like per each shoot, I would pay X amount. That would be a better way to say that this person is a contractor versus an employee. If the person already has a business and they shoot others around the way for different purposes, that's even more cause to say this person is a legitimate contractor. The issue with relations is it looks like you're trying to not pay taxes on an employee when it is someone closely related to you. So you can get issues with that. But if that person legitimately has a business and does this all the time, there shouldn't be an issue with considering that person a contractor.
The Most Overlooked Tax Deductions for Content Creators
Hi, everyone. Welcome to today's webinar. We're so thankful you've joined us on today's call and look forward to connecting with each of you. As we give people time to trickle in today's call, I'll take some time to introduce myself and talk a little about ComplYant. In the chat let us know where you are tuning in from. So, introduce yourself and talk a little about what your business is. I'm Fran, I lead the customer success team here at ComplYant. Prior to my work with this community, I worked in corporate tax for six years. And during that time, I realized just how unclear and confusing taxes can be. So, I love that I get to take part in the educational and support aspects of the compliance community. Our customer success team looks forward to connecting with each of you and hopes of gaining better insight into your business. We'd love to hear from you so email us if you'd like to share more about your business at email@example.com. That's H E L L O @ C O M P L Y A N T.co. If you're not familiar with ComplYant, it's a technology platform that offers business owners and entrepreneurs a simple way to manage tax rules and requirements. Here at ComplYant, we understand how complicated tax can be. And our mission is to help simplify business tax.
Along with our user-friendly dashboard, we offer educational content through our blog and webinars like today's call. If you haven't yet, please check us out at complyant.co. That's C O M P L Y A N T.co. It can be challenging to know what kind of tax deductions you can obtain. So, on today's call, most overlooked tax deductions for content creators will give you a deeper glance at what kind of deductions you can use towards your business. Leading today's webinar is ComplYant's very own Ro Williams, who manages the tax research team. What Ro loves about tax is to find the gray area within the black and white. Now, although we are a tax compliance software, we are not an advisory firm. Any information provided by our team members is not intended to be taken as advice or perceived as a specific position on any subject of tax law. Now, before I turn it over to Ro, please feel free to text your questions either in the chat box or the Q and A box, both are listed at the bottom of your zoom screen. If you'd like to ask a live question, please raise your hand and I'll turn your speaker on at the end of our talk. Okay. Take it away. Ro
Hi, I'm Ro, thanks again for joining us. I am a tax enthusiast, I love tax and I'm the tax research manager here at ComplYant, where I gather data verify and validate that data and program the data into our system. Today, I'm going to speak about why and what expenses content creators can deduct. And remember, this is not taxed advice, but more so just for educational value. Many content creators do not know what expenses are deductible for the content they are producing. And some people may even ask, why, why are these expenses deductible? Why do content creators get to deduct these expenses and even more, how can someone that is producing these videos, deduct expenses? And that’s the whole thing about what I want to point on today is can content creators deduct business expenses.
Deducting Expenses: Section 162 (04:00)
So here at ComplYant, we love to give a foundational basis and I wanna walk you through exactly how and why expenses can be deducted. So, let's start off with section 162.
Section 162 explains that expenses are deductible and it explains what type of expenses needs to be in order for them to be deductible. Under the internal revenue code, expenses that are ordinary and necessary to or related to carrying on a business or trade are deductible. So, the way we need to really look at the question is we should consider if the expense is necessary and ordinary to the content that's being created but rather does a content creator consider themselves as carrying it on a business or trade. And if so, are those expenses deductible? So, the main idea is for you to look at this little small section that asks is the content you're creating related to, or carrying it on a business or trade. And that's the only way a content creator can really deduct business expenses is if they actually have a business.
Deducting Expenses: Section 183 (05:19)
So, in opposite of section 162, we have section 183, which says that if you are not engaged in an activity for profit, then no deduction is allowed. So, therefore, if a content creator is creating content for the purposes of profit, then it is likely the IRS will allow your deductions. It is extremely important that you identify your intentions in relation to content creation. It is about your motive. If the motive is to make a profit, then you're on the right track to having your expenses allowed. But again, that doesn't necessarily mean that they are deductible. The IRS goes via case-by-case basis when it comes to audit and allowing expenses to be deducted.
Scenario 1: YouTube Brother vs YouTube Couple (06:10)
And I wanna give a couple of scenarios for clarity. So the first scenario we have is a YouTube brother versus a YouTube couple. Youtube brother, let's say his name is Hank and Hank decides that he wants to make a YouTube channel that focuses on how to build things around your house. And he wants to make this channel because he grew up without a dad and a dad couldn't show him how to do all these things and he just feels like he wants to offer that dad experience/advice to people that didn't grow up with that. So, YouTube brother, he decides that out of the compulsion of his heart, he wants to make this channel. Whereas we have YouTube couple. YouTube couple, they decide that, Hey, it's a lot of people who have these YouTube channels and they're making money. So, let's go ahead and make this YouTube channel to collect money for the things that we put on our channel or our sponsorships and our ads. So, in this scenario, the question is who is allowed to deduct the expenses from their content. YouTube brother, his stuff is based on YouTube, he has a couple of subscribers, a couple of ads, but his overall intention was to create this channel for people to gain an experience that he didn't have as he was growing up.
Where the YouTube couple, we know that they went into the YouTube channel creation for profit. We know that they wanted these ads and these sponsorships, and to be able to sell the products that they were advertising. So, in our first scenario, the YouTube couple would only be able to deduct their expenses because of the profit motive solely. So, the IRS looks at the profit motive and the intent that you have in creating the channel. And in order to deduct these expenses again, we have to be based on creating a business or a trade. So the expenses that the YouTube couple has deducted are production supplies. And that's anything from your cameraman being there, your videographer being there. If you have a crew, you have to feed your crew so those expenses are business deductible. Any wardrobe you have to use in the skit or ad, if it's hair and makeup, maybe you're renting a space to shoot the video or the ad or whatever it may be. Those items are all deductible and possibly more. If you had to get a taxi to take you to the space and that's deductible that day, maybe for some reason or other, you may need to have a nanny that's along with you that can possibly be deductible. It all has to be related to the content you're producing and making sure that that content is actually considered a business or a trade in your eyes.
Scenario 2: Sallie Homemaker vs Chef Puma (09:14)
The second scenario, we have Sally homemaker and chef Puma. Sally homemaker decides that she wants to sell her baked goods through Instagram. So, she starts posting pictures and she starts making reels showing how you can make all the goodies that she sells at the baked goods drives at school and all those things. Chef Puma wants to make an Instagram channel just basically that consists of him making meals, something he loves to do. He works at a restaurant, but he really missed the passion of actually creating foods that people enjoy and showing them how to create them. So, in this scenario, only Sally homemaker’s expenses will be deductible, and her expenses will be deductible simply because she went in with the motive and the intention of selling her baked products through Instagram, that's what she wanted to do. Where Chef Puma, he already works at a restaurant, so it will be easy for him to create this other source of income that's stemming from his restaurant. But in our scenario, it was very clear that Chef Puma, he wanted to do this because he missed that connection of creating foods that people enjoy and not necessarily having to pay for them.
So in this scenario, Sally homemaker will be able to write off her expenses, and just like the YouTube video, any production supplies, any wardrobe she needed in the skit, any cooking supplies, maybe she's renting out a kitchen, she can definitely take a tax deduction on the rental cost for the kitchen. If she had to purchase any pots and pans, those are expensible. Any food that she actually cooked in the making of the video, regardless if she ate it, or if the crew ate it, or if they just disposed of it, that's a supply and ingredient. Those are also allowed to be deducted on her taxes.
Scenario 3: House of Emme vs Masterpieces by Chris (11:30)
Our third scenario is a house of Emme and masterpieces by Chris. House of Emme, Emme is a young lady who works in retail and she decides she no longer wants to work in retail. She feels like the outfits she creates and the patterns she sews are just extremely better than anything that the retail she works at offers. So, she quits her job at the retail store and decides she's gonna start her own wardrobe line, and she's gonna start making these fashions and selling them. So Emme quits her job, she starts this business, and she launches her wardrobe collection. However, unfortunately, her wardrobe collection was not as good as she would have hoped. And what happens is Emme doesn't make any money. So, she's $30,000 in debt. She's made no money from it. And she decides to go back to the retail store to work now that her fashions aren't selling the way she thought.
And then we have masterpieces by Chris. So, Chris is a young artist and he's very passionate about his art. He loves his art and he feels like people who see his art also love his art. So, Chris decides his art is the most beautiful thing in the world and he wants everyone to see it. So, he decides to start taking his art to Central Park every morning and selling it in the middle of the park. Chris, in this scenario, doesn't put prices on his art. He lets people buy them for whatever they want to buy them. His ultimate joy is for people to actually have his pieces. So in this scenario, Emme would actually be the only one who can write off the supplies that she has. And it's important to note that although Chris made money in this scenario and Emme did not, Chris's ultimate intention was to spread joy through his paintings. His ultimate intention was to show the world his art, and because he didn't have a static price you can buy his art from a dollar to a hundred dollars. He didn't care. That's very important when it comes to looking if you can actually write off things because Chris didn't have any motive intent if he had a motive intent he would surely sell his art for more than a dollar.
In this scenario, Emme did not make any money. She was $30,000 or so in debt. And she went back to work at the retail store. But the fact that her ultimate intention was to sell her items and to start this business. And she really thought she would thrive, it would weigh in towards the factor of she had the intent of profit motive. So, what's tax-deductible for Emme is clothing and pattern supplies, sewing machines, any inventory she has, a photographer or videographer. If she had a fashion show, any props used in the fashion show, any of the rental space used for the fashion, any hair and makeup used for the fashion show, all those things related to carrying on a business or trade are actually tax-deductible.
And I wanna go back for a second to YouTube brother. So, if one day YouTube brother, you know, he decides he has these ads and he's getting paid for these ads and he has this huge subscriber audience. Maybe one day he decides okay, I want to actually put forth a larger effort in getting more ads and making sure people subscribe to my channel, that transitionary period of I actually want to make money versus me just wanting to put out content to help, that transitionary period is very important because it's arguable during that period when you're getting your ABCs in order and you're making sure your business is running efficiently and as an actual business, that transitionary period can be considered when he decided that his business was for profit motive. And so that will ultimately help him to start writing off those expenses. Maybe when he made that decision, he invested in higher quality cameras or he actually hired somebody to shoot for him instead of just setting up a tripod to shoot his projects. Things like that are super important because it shows that your intention actually shifted from me wanting to share with the world for free to actually me wanting to share with the world and make money off what's being shared. So that is all I have for today and it's time for Q and A.
Let's open up for some questions. Just a reminder. You can drop your questions in the Q and A box or the chat boxes now. And again, if you want to ask a question live, raise your hand and I will give you access to ask Ro your question. Let's look over some questions that were submitted.
Q1- What can I write off if I have a recording studio? (17:09)
What can I write off if I have a recording studio?
If you have a recording studio and you consider yourself as carrying on a business or trade, and again, this isn't tax advice, but more so just of educational nature, you can write off any new equipment you purchased for that recording studio. If you had to stock the recording studio with beverages or snacks for recording artists you can write that off, the light bill, of course, a portion of that can be written off. It depends on if the recording studio is in your home or actually based in a business because then you have to separate out the lights that go directly to the recording studio versus actually the lights that are powering the whole house. So, there are different things that you can write off depending on your industry. But the key thing is to make sure one, you're carrying it on a business or trade and not a hobby, and two, what you're writing off is directly or indirectly to some capacity, because lights can be indirectly related to you carrying on that business or trade.
Q2- How much money should I make before I start tracking? (18:19)
Wonderful. Is there a minimum of how much money I have to make before I should start tracking how much money I make?
This is a great question. The super important thing about carrying on a business trade is that you start tracking it as soon as you start it. That's why it's extremely important for you to have a business bank account that's dedicated to just that business because that's another way for you to file an audit. An audit looks at nine factors and one of those factors is how you are actually carrying on this business or trade. If you're carrying it on like it's a hobby and you don't have to put much care or time into it, if you're ever audited, then that's a reason for the IRS to deny each expense. And also, on top of that denial, you'll receive a penalty and interest. So, it's super important that if you start a business, you start acting as though it's a business the day you started, and maybe you don't start a business directly as a business. Remember the YouTube brother, he started it to help people, but that transitionary period where he decided Hey, I can actually make money off of this. During that period is when he definitely needs to set the tone that this is a business that I'm carrying on, it's a business and I'm taking care of it like a business owner would take care of their business.
Q3- Who is considered an employee? (19:51)
Great. We have another question. I believe it's related to a recording artist. If my kids or friends help me record, do I have to consider them as employees or contractors?
I would say it depends on what you mean by help you record. If you have a kid who's working in your studio and they are actually doing work, maybe it is answering phones or filing papers or sanitizing, then you can pay them as an employee or a contractor. I would say <laugh>, you should pay them as an employee because the contractor situation gets very sticky and very hairy. But if you just hire a friend to do odd and end things for you, like maybe repair something, that's definitely a cost to be considered as a contractor if they're not working for you every day and you're not controlling them. There are certain standards that the IRS uses for an employee versus a contractor, so you just have to make sure that you're meeting those standards of a contractor versus an employee.
It looks like to help record or shoot content
To help record or shoot like if it's a photographer or videographer. And maybe you guys can write up an agreement showing like per each shoot, I would pay XX this amount. That would be a better way to say that this person is a contractor versus an employee. If the person already has a business and they shoot others around the way for different purposes, that's even more cause to say this person is a legitimate contractor. The issue with relations is it looks like you're trying to not pay taxes on an employee when it is someone closely related to you. So you can get issues with that. But if that person legitimately has a business and does this all the time, there shouldn't be an issue with considering that person a contractor.
Q4- Deductible equipment? (22:02)
Okay, great. Let's talk a little bit about equipment. If I have equipment I use mostly for business, but on occasion, I do use it for personal. Is it still deductible?
So, it is deductible to an extent. If you purchase it through a business account and you have a set of books for it, the way your content may do it is they may take off some of its depreciable life of it. For the most part, I would say most IRS agents, they are not as strict when it comes to you using a mic at a family function. If you own a recording studio, if you have a business as a recording studio, if you have like a website, like, Hey, we actually rent out this space, then it would be safe to say that it is counted as an asset. That's what it would be. It would be a depreciable asset or a fixed asset on your books. So, yes.
Q5- Business entity as a content creator? (22:58)
Perfect. Do I need to form a business entity as a content creator?
It depends If you want to deduct your business expenses as a content creator. Content creators typically are themselves, they typically work as sole proprietors, or they may transition to LLCs. I would say in order to pass an audit, if you're ever audited and if you take your content creation seriously, and if you consider yourself a business, then just go ahead and form that business, regardless of whether it's an LLC or C Corp. Most IRS agents will tell you it looks better to be a C Corp that's because it directly identifies that this is an entire business by itself. Whereas this is like limited liability, it gets kinda iffy over here. And I know the whole thing about that is like, oh, well, we can't get sued. That's not true. There's more protection in a C Corp than in an LLC. So if you are serious about your content creation, if you definitely want to pass the audit, I would say, go ahead and create a business and set the tone that you are running a legitimate business.
Q6- Can you deduct previous expenses? (24:16)
Awesome. So, midyear, I decided to transition my hobby into a business. Can I deduct any previous expenses when my business was still a hobby?
Because it was a hobby, I am going to go ahead and say, no. There's something called startup expenses and startup expenses are I'm planning my business, that's like organizational costs. Getting your LLC paperwork or your C CORP paperwork, or whatever entity, paperwork together, you can write off those expenses. The issue with you knowingly saying, Hey, I was participating in a hobby, means no, you definitely cannot write off. Your transitionary period though, that gives you the basis of actually writing off expenses. So at that point, I would start looking into the transitionary period. I would start looking into if those expenses are deductible, but anything related to a hobby or you even say in your head like, Hey, I was performing a hobby. No, immediately, no.
Q7- Industry-specific deductions from the IRS? (22:58)
OK. Just a couple more minutes. If you have any questions, please submit them now. I do have another question. Are there industry-specific deductions from the IRS?
They are not industry-specific deductions. There are a lot of check sheets and checkoff lists that look at certain industries. There is something called an entertainment technique audit guide, that guide, it looks at different things related to different industries that you may be able to write off. In that guide you'll find like, oh, I can write off production calls, I can write off attorney fees. So, it gives you a little bit, but there's not an entire checklist, which is why you should get an accountant. And sometimes it's best to get an accountant who actually is focused in that area because they become a little bit more like, oh, you can write this off. For instance, if someone has the OnlyFans or if they are an actual YouTube couple and they're like really looking at these other YouTube couples and everyone's having surgery or doing X, Y, Z... So, an accountant who practices in content creation then they may know like, oh, cosmetic surgery is something that concentrators can actually deduct. Whereas an accountant who focuses on real estate, they'll look at you a little bit crazy if you say, Hey if I get cosmetic surgery, can I deduct this? Because it's not a widely known thing, but an accountant who's not in that industry doesn't know. So, the entertainment technique audit guide, that's a great place, but it's not gonna list it out how most people think a checklist is.
Awesome. Well, thank you Roe for enlightening us on today's episode of most overlooked tax deductions for content creators. And thank you everyone for joining us. A recording of today's episode will be available and emailed to you at a later time. For more information about ComplYant or if you missed an opportunity to ask a question, please feel free to email us at firstname.lastname@example.org. You can also send us any suggested topics you'd like for us to cover in upcoming webinars. Thanks, everyone for joining us today. And thank you again, Ro. Have a great day