This is the United States income tax guide for YouTubers earning income. We also have a Canadian income tax guide.
Disclosure: This is not official tax advice. Always perform your own research and consult with a CPA/tax expert with respect to the complexities of your unique situation.
Do YouTubers have to pay taxes?
Yes. Just like everyone else, YouTubers have to pay taxes on all income associated with being a YouTuber/social media influencer. Income attributable to a YouTube business may include Google AdSense earnings, free products received, and direct payments from companies for video sponsorships.
Are free products received considered income?
Yes, with exceptions.
Gifts with a value greater than $100: If you receive a gift (free products, trips, etc.), it is considered income and you will generally need to pay tax on the value of the gift.
Gifts with a value lower than $100: You are not required to include the value of these items on your tax return.
Is being a YouTuber considered a business?
Yes. As a YouTuber, you are deemed to be carrying on a business in the eyes of the Internal Revenue Service (IRS). Therefore, you must report all earnings associated with your YouTube business as gross business income. You are then entitled to various deductions to bring down your overall net income for business purposes.
Most YouTubers are deemed to be a sole proprietor unless they otherwise incorporate or set up a different legal structure for their business. As a sole proprietor, you would generally be deemed to earn self-employment income. Self-employment income is taxed under U.S. tax law similar to employment income. However, a sole proprietor may claim deductions for business expenses, generally not available to employees.
SEE ALSO: Setting Up YouTube Business Legal Structure
Sources of Income
Google AdSense income is one of the major sources of income for many YouTubers. YouTubers earn income from ads being placed throughout their videos.
Google rarely withholds U.S. federal income tax on payments made through the AdSense program. If you have earned more than $600 from Google AdSense in a calendar year, Google will issue you a Form 1099 before the end of January of the following calendar year.
Form 1099 confirms to you the total amount of income you’ve received from the AdSense program, and is also sent to the IRS to allow them to validate your reported income when filing your income tax return. Even if you have not received this form due to earnings less than $600, you are still required to report ALL of your earnings.
Similar to Google AdSense, each company or brand making payments to you for sponsorships or collaborations in excess of $600 are legally required to issue you a Form 1099. This income must also be reported on your tax return. Ensure you keep track of all income earned, regardless of the source and amount.
Common Business Expenses and Deductions
Since being a YouTuber is akin to running a business, you are entitled to expenses and deductions incurred in the course of carrying out your YouTube business.
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.The Internal Revenue Service
Listed below are some common business expenses that a YouTuber may incur during the course of their business.
- Business use of home: if you film inside your home, have a dedicated studio space, and/or use your home as a workspace to edit and upload your videos, you can claim a portion of all of the expenses that contribute to maintaining your house – including property taxes, heat, electricity, insurance, maintenance, and mortgage interest
- Subcontractor expenses: if you pay someone to help you prepare videos or assist you in any way related to your YouTube channel, you can deduct these payments against your income
- Office expenses: any expenses incurred in the course of maintaining the business-side of your YouTube channel are deductible – including pens, printer paper, toner, and business bank account fees
- Internet: the costs you pay to your internet service provider (ISP) are deductible at the percentage used for your YouTube business (ie. 50%)
- Cell phone: your cell phone bill is also deductible at the percentage used for your YouTube business
- Professional fees: any fees associated with experts you’ve hired in the course of your YouTube business, either for consulting to help you get started or for a CPA you’ve hired to help with your taxes, are deductible
- Vehicle & mileage: costs associated with travel via automobile for business purposes are deductible to an extent
- Travel: other travel costs (hotel room, airfare, Uber, car rental) associated with YouTube conferences or other destinations directly relevant to your YouTube business may be deductible; ensure you allocate expenses appropriately where your travel expenses comprise a mix of personal and business items
- Data storage & subscriptions: purchases of external hard drives or cloud storage subscriptions are deductible when used for the purpose of storing video footage; additionally, any ongoing subscriptions relevant to your YouTube channel, such as royalty-free music licensing services, are deductible
- Advertising: costs associated with advertising your YouTube channel are deductible, other acceptable costs under this category may include the cost of contests and giveaway prizes
- Software: the purchase of professional video editing software used for YouTube may be completely deductible
Some costs must be capitalized, rather than deducted immediately in full. Capitalized costs are deducted from income over time through depreciation or amortization. Things like equipment, furniture, and trademarks are considered capital in nature.
These items will be deducted over a period of time, for example, a new DSLR camera purchase can be deducted at 20% of its original cost for a period of 5 years. The rates and time horizon vary by type of capital expense, so it is important to consult a tax professional on these items.
As a sole proprietor, you’re more likely to be subject to an audit, so it’s imperative that you maintain appropriate documents and records (ie. receipts, invoices, contracts) to ensure that you have sufficient proof to substantiate expenses claimed as a deduction for tax purposes. Consider maintaining digital copies of documents and store them in the cloud.
Tax Filing Requirements
You may be familiar with Form 1040, U.S. Individual Income Tax Return. However, as a business owner, you also need to file Schedule C, Profit or Loss from Business (Sole Proprietorship), in which you would report all of your YouTube income and related deductions.
The deadline for filing your Schedule C with Form 1040 is typically April 15. Extensions are available and can be filed, but you should consult with a professional before doing so.
If you owe business taxes, the deadline for paying these taxes is typically March 15.
There are penalties associated with non-payment and insufficient tax payments – so keep on top of deadlines to avoid having to payout additional amounts to the IRS.
Tax Best Practices
- Find a reputable tax accountant and work with them throughout the year to ensure you meet your filing obligations and are prepared come tax season.
- Use an accounting software or find a bookkeeper (virtual bookkeepers are becoming more common) to help you keep your finances in order all year long. This reduces the burden of needing to compile and calculate all of your expenses during tax season.
- Open a separate bank account where income payments are deposited and funds for expenses will be drawn from. This ensures a hard line is drawn between personal and business activities and increases the odds of a favorable audit.
- Calculate your tax bracket based on your estimated annual income. Open a separate bank account (ex. high yield interest savings) and ensure you are putting away a percentage of your earnings each time you are paid, based on your tax rate. The worst position to be in would be finding out in March that you owe taxes and haven’t put away enough to cover the payment.
- Take advantage of technology – use your phone to scan and create copies of all expense documentation and track your time and mileage for business purposes.