Influencers – such as bloggers and social media mavens – have risen in prominence as the internet becomes more integrated as a tool for communication and commerce. In fact, many influencers make significant profits by plying their particular brand of persuasion.
With profit, though, comes taxes. While clarity has been late in coming, the IRS and other taxing authorities have begun laying down tax guidance for influencers who earn income, including nonmonetary benefits. If you’re a professional influencer, or even a casual one, you’ll want to become fully aware of the tax implications of your activities.
Naturally, any money you make in return for goods or services must be declared as income. Whether or not you pay taxes on it depends on how much you make and how much you can offset the income with expenses. In general, though, the IRS considers any money you make, regardless of the currency you’re paid in or the country from which the payment originates, as taxable income.
Even passive income can be taxable. You might have to pay taxes if you make money via sponsorship or advertising income, affiliate links (where you earn commission on products or services bought on your site), or nonfinancial benefits such as free products or services.
Nonfinancial benefits can be tricky. But the IRS rule goes something like this: unless someone gives you something out of affection or respect, like a gift from a family member or friend, then it’s taxable.
That means if you get free stuff to review or publicize, it’s taxable. If someone related to a business pays for your travel expenses, that’s taxable, too. Even if you get a SWAG bag at a conference, that’s usually taxable as well. The key is to keep good records, annotated with the circumstances of the benefit, so that you can determine taxability come tax season.
Making sure you get it right
The IRS allows you to offset self-employment income with expenses related to operating the business. According to the IRS, any business expense must be “necessary and ordinary” for your business, so the types of expenses are pretty vast and numerous. But some of the most common ones would be home office, supplies, equipment, advertising and education/training.
One caveat is that if your influencer activity is more of a hobby than a business, the IRS may disallow some of these deductions.
Tax preparation software can be useful, but when it comes to new ventures such as this, it pays to hire a knowledgeable accountant to handle your taxes. An accountant can explain all the tax rules and make sure you’re reporting your income while easing the tax burden with the tax breaks to which you’re entitled.
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