Commonly Overlooked Tax Deductions for Content Creators

What Are Content Creator Tax Deductions?

Tax deductions are expenses you incur while running your content creator (or any creative industry business).  The Internal Revenue Service allows you to reduce the income subject to tax by these amounts.  The IRS defines an item as a business expense if it is "ordinary and necessary." 

Ordinary means it is a common expense in your industry.  What is considered ordinary for a Content Creator would not necessarily be normal for say a plumber.  Necessary means that the business owner is attempting to make a profit (business income), and the expense furthered that cause.

Benefits of Knowing About Content Creator Tax Deductions

By taking all of your write offs for influencers as tax deductions, you lower your taxable income, and therefore your income taxes.  This means you lower not just your Federal income tax, but also state, and local income taxes if they have them where you live.  In addition to lowering your income tax, it also lowers the amount of your self-employment tax, an additional tax imposed on self-employed taxpayers.  You can read more about that in this article.

Most Overlooked Tax Deductions for Influencers

We'll skip the obvious deductions you have already thought of like editing software and your cell phone. In case you were wondering, yes you can write off professional services, professional development, office supplies, credit card interest, printer ink, office furniture,  bank fees, and networking events!

Let's dig into the back of the cupboard for the write offs for content creators you probably haven't considered.

Home Office Deduction

To qualify as a residence, the IRS has two requirements. First, the space must be used regularly and exclusively for business. Second, it must be the main place of your business. No occasional use allowed, sorry! But don't worry, you can still do business elsewhere or have another office. 

Any structure will do, even a mobile home or a detached studio. When calculating your deduction, it's all about the percentage. So if your office is 200 square feet and your home is 1,000 square feet, you can deduct 20% of the expenses. Easy math! 

If you want all the juicy details, the IRS has a 34-page publication with a flow chart. Or you can just ask a tax professional, which is what we recommend.  You can read more about the home office deduction in this article.

Travel Expenses

The standard principle is that business-related travel expenses can't be deducted unless they're both ordinary and necessary; legal interpretations of these criteria tend to be quite inclusive. The IRS evaluates several factors to determine if travel expenses qualify as deductible for business purposes:

- Earning Intent: It's imperative to demonstrate the trip's potential to generate income. Immediate or actual profit isn't required—only a reasonable expectation of eventual financial gain.

- Overnight Requirement: The journey must include at least one overnight stay.

- Exclusive Business Motivation Test: A practical businessperson should view the trip as one undertaken for sound business reasons.

- Predominant Business Goal Test: A straightforward method is ensuring most of the travel days are for business purposes. Generally, days spent traveling can count as business days.

- Rigorous Record-Keeping: Obviously, one must maintain detailed records of all expenses during travel, dates of departure and return, days devoted to business, destinations, and the business purpose of the trip.

Regarding the intermix of personal and business days, costs specific to personal days (like hotel fees) are not deductible, but total transportation expenses can be. Many in social media influencers manage to classify most days as business-related, thus circumventing this issue.

Medical Expenses

If you file as a sole proprietor, you can set up a Section 105 Plan: This employer-sponsored health benefit scheme enables sole proprietors to fully deduct their medical costs, inclusive of health insurance premiums, off their business taxes. It takes its name from Section 105 of the Internal Revenue Code, which dictates the tax protocol for employer-financed health benefits.

Fundamentally, a Section 105 Plan permits a sole proprietor to categorize health insurance premiums as a business outlay, which diminishes taxable income and facilitates tax savings.

Upon initiating a Section 105 Plan, a sole proprietor can compensate themselves for medical expenses, including health insurance premiums, with pre-tax funds. Adherence to IRS stipulations is critical, requiring that:

- The plan is formally documented and defines eligibility criteria.
- It offers benefits to all qualifying employees.
- It avoids bias towards highly compensated employees.
- It's entirely employer-funded.
- It strictly reimburses medical-related expenditures.

A paramount advantage of a Section 105 Plan is the business expense deduction for health insurance premiums, lowering taxable earnings and yielding tax reductions. It also grants sole proprietors the flexibility to tailor health benefits to their preferences, as opposed to being restricted to standard insurance offerings.

Additionally, the scope of a Section 105 Plan extends to a variety of medical costs, such as deductibles, copayments, prescriptions, and even certain non-traditional treatments. This aspect is particularly beneficial for those dealing with persistent health issues or facing substantial medical procedures.

Paying Your Child

Employing your minor child can offer notable tax benefits, as their wages are exempt from Social Security, Medicare, and FUTA taxes until they reach 18, with the FUTA exemption extending until they turn 21. They can work on a part-time or full-time basis, earning less than $1,000 per month.

With the 2022 standard deduction set at $12,950 for individuals, your child won't owe federal taxes on the initial $12,950 they earn, provided they have no other income. An additional tip: your child can allocate a portion or all of their earnings to a Roth IRA or a college savings plan.

Should your child's earnings surpass the standard deduction cap, they'll likely remain in a lower tax bracket than yours, thereby still reducing the overall tax liability for the family. Moreover, you'll gain a business tax deduction for their wages — funds you might have given them anyhow — which decreases your federal income tax, self-employment tax, and state income tax burden.

Retirement Plans

Establishing an individual 401k presents a wealth of benefits for retirement planning and tax savings. It's wise for every entrepreneur to accumulate wealth beyond their enterprise, primarily through retirement accounts and real estate investments. Among retirement options, 401ks are unparalleled. Running a business solo? Perfect — the solo 401k plan is designed for you.

Solo entrepreneurs can open an individual 401k at most brokerage firms, provided they don’t employ anyone other than their spouse. If other employees are on the roster, a standard 401k is required, which entails additional compliance, filings, and expenses.

Solo 401ks boast higher contribution limits than alternatives like SIMPLE IRAs or SEPs, offering more substantial tax deductions. They also feature a Roth option, bypassing the income restrictions that limit Roth IRA contributions. The icing on the cake? You're allowed to contribute to both a Roth 401k and a Roth IRA, maximizing tax-advantaged growth.

Another perk of 401ks is the loan provision, allowing you to lend money to yourself. It must be repaid within five years through payroll deductions and with interest, but this strategy enables you to access funds from your retirement pot without immediate tax implications.

One Content Creation Expense You Can't Deduct

Clothing is one thing thought to be a common influencer tax write-offs.  Probably not.  In order to deduct apparel as a business deduction, it cannot be suitable for everyday wear.  Think safety vest.  It doesn't matter that you don't wear it except work, just that you could.  Now if you slap a logo on that thing, you're good, its a uniform.

Who Qualifies For Content Creator Tax Deductions?

You must have a business that you are filing income taxes for.  Most tax returns will be Schedule C of Form 1040 for sole proprietors.  Although you do NOT have to have revenue initially (maybe you started your business in December), you must be wary of the business being classified as a hobby by the IRS.  This could disallow your tax write offs and losses and increase you taxes.

Conclusion

In conclusion, as a content creator, taking advantage of commonly overlooked tax deductions can make a significant difference in your financial situation. Don't let your hard-earned money slip away when you could be saving on expenses like equipment, software, or even home office deductions. By staying informed and maximizing your deductions, you can keep more money in your pocket and focus on what you do best – creating amazing content. Happy creating and happy tax season!