Tax Essentials For Creators with Sarah Chetrit
Sarah Chetrit, a travel content creator and former certified public accountant (CPA)*, recently joined us on Instagram Live to answer any and all burning questions about creator taxes. See below for a recap of the event ICYMI, and see here to watch the live replay!
* Sarah is an inactive and unregistered CPA. This post should not be considered professional legal or financial advice.
What are tax write-offs and how do they apply to creators?
Tax write-offs, also referred to as expenses or deductions, should be tracked and subtracted from your total earnings. This final figure is your taxable income. And, the more expenses you track, the less income you’ll have, and the less taxes you’ll pay.
Creators, in particular, compile many miscellaneous expenses in their daily lives that are often never considered as potential write-offs. Creators may be eligible to expense part of their phone or laptop, Lightroom subscriptions, and home offices. Travel expenses related to capturing content, even local gas bills, and any professional seminars or lectures that provide business or industry knowledge can even be considered deductions. It is important to note, however, that creators run into many gray areas with expenses. This is particularly true for lifestyle, wellness, or fashion influencers who may find themselves with expenses that pertain to both their personal and professional lives such as clothing or beauty products. As a rule of thumb, an expense should only be considered for costs that are purely for your business, are ordinary for the operations of your business, and are necessary for generating revenue from your business.
Creators must be mindful of tracking expenses throughout the year with tools like spreadsheets or Lumanu’s expense tracker.
Do I need to pay quarterly taxes as a creator?
Creators must also be mindful of quarterly taxes. For salaried or hourly employees, taxes are withheld from paychecks automatically. For freelancers and creators, this is obviously not the case, and thus many freelancers must file quarterly taxes. However, this only applies to those whose tax payment at year end is more than $1,000. If you won’t owe more than $1,000 to the IRS, then there is no need to file quarterly tax payments.
How might LLCs affect my tax situation?
Many creators and freelancers choose to create single-member limited liability companies (LLCs) for their personal business. This LLC structure separates personal and business assets and requires one to have separate business and personal bank accounts. The main purpose of this structure is to protect personal assets from any liability or legal action related to the business. An LLC structure itself does not affect the amount one pays in taxes. However, having a separate business bank account or credit card makes it easy to keep your business expenses separate from your personal ones. There’s no need to meticulously search for and separate business expenses when filing.
Do I need to report gifted items?
This is another situation in which professional help is advised. Just as you would not report a gift from your grandparents on your tax filings, you would likely not need to report a gift from a brand if there is no obligation to exchange content. However, depending on the value of the gift and the nature of the relationship with the brand, this can become a complicated gray area.
Where should I go for help?
Sarah recommends investing in a professional or software service in order to save the most on taxes and spend more time creating content. Turbotax and H&R Block are both reputable tax softwares, but often a CPA with experience in the creator industry will be the most helpful option. Sarah advises asking around your creator network to find CPAs familiar with the gray areas freelancers and creators find themselves in.
What if I haven’t started?
Don’t freak out, but get started. Reach out to a CPA and consider applying for a six month extension from the IRS. You still have to pay the money you owe by April 18, but any filings or refunds can be dealt with later. If you fail to file or misreport expenses, the IRS will likely consider this negligence which could result in fines. Thus it is important to keep your receipts and records of expenses for several years after filing should any issues arise.