When Grant Dougherty, registered agent and founder of Dougherty Tax Solutions, tackled taxes for content creators who make rap videos, one business deduction jumped at him.
“They have totaled over $10,000 in transactions from cannabis stores,” Dougherty told Yahoo Finance. [it’s] in the video and he deducts [it] like a surprise. “
Doherty, who laughed while talking about tax no-nos, removed the charges because marijuana is still illegal under federal law.
Believe it or not, Dougherty’s experience is not unique when it comes to influencers whose ecosystem is built to profit from their lifestyle, and what an acceptable business deduction is. Or, it often causes confusion about what taxable income is.
Tax deductible or not?
One of the most common tax mistakes social media creators make is around expense deductions. In the world of social media, it’s not always clear what can be considered business-related expenses. What you eat, use, or wear in the video can also be for personal purposes.
For example, someone who creates gym-related content might argue that they should be able to deduct gym membership fees as part of their business. You can also use the facility for
Gregory Kling, CPA and associate professor at the University of Southern California’s Leventhal School of Accountancy, told Yahoo Finance: “But we need to look further to determine if there are specific permits or disallows that override the costs.”
In the gym membership example, there are tax laws under Section 274 (a) (2) that specifically prohibit business deductions for sports clubs or sports club fees. But tax law has not kept up with the influencer business culture these days. We were able to use our gym facilities to shoot content that directly generated revenue.
“I agree 100% that the tax code has not caught up yet,” Kling said. “Tax laws do not address influencers who are out-of-pocket for what we would normally consider personal expenses.”
Also, in the history of business tax expense, the Internal Revenue Service has allowed what is considered an astonishing tax credit.
Most notably, one exotic dancer was able to deduct breast implants as a business expense. The dancer claimed that her implants were necessary for her job and that they directly contributed to her increased income from $750 a week to $3,500 a week. The U.S. Tax Court ruled in her favor and recognized her benefits.
But things like this, Doherty says, suggest taxpayers become more conservative, rather than liberal, in interpreting what a business expense is.
“At best, if you’re in a really expensive gym [with annual costs around] If you have $500, you can probably save $100 or $150 in taxes,” says Dougherty.
“Free product” with string
Another area that catches many content creators off guard is paying income tax on sponsored gifts. In the eyes of the IRS, exchanging gifts for social media posts is considered a commercial transaction.
“If I receive compensation for services or property, it is taxable based on the fair market value of what I receive,” Kring said. It’s all taxable income unless there’s a code section that says it’s not covered.”
Dougherty gave an example.
“If I give you a car because you are this influencer and I believe giving you this car will help build my business, I will give you that car.” It’s very similar to me giving you a salary.”Your average influencer certainly doesn’t know.”
Even small, inexpensive promotional items such as clothing and cosmetics for companies to post on social media are not tax exempt.
“When someone dies, it’s called an inheritance. If someone gives you something just because they like you, you’re their friend and it’s a gift,” Kring explained. “If it’s not an inheritance or a gift, pretty much everything else will end up being taxable income, especially if you get something in return.”
Consider award ceremonies, for example, Kring said. Actors and actresses do not typically receive money to award awards at awards ceremonies, but often receive a swag bag in exchange for their services. should be recorded in writing.
This issue has gone largely unnoticed because companies are not required to issue Form 1099 NEC for non-employee compensation payments for products with a market value of less than $600. Too many media creators may have received sponsored products without knowing the tax implications.
Sponsored products must be included on tax returns regardless of whether a Form 1099 NEC has been issued, but Dougherty notes that this is an abstract idea that many people unintentionally overlook. I recognized it.
“I think very few people know that,” he said.
Rebecca is a reporter for Yahoo Finance and previously worked as an investment tax. Certified Public Accountant (CPA).
Click here for the latest personal finance news to help you invest, pay off debt, buy a home, retire, and more.
Read the latest financial and business news from Yahoo Finance