Tax Deductions 101: What Every Content Creator Should Know
As a content creator, you might feel overwhelmed by the complexity of tax deductions. You know that you can deduct expenses and save money, but which ones? What do you need to do to deduct them? In this guide, Tax Deductions 101: What Every Content Creator Should Know, we’ll answer some of the common questions we get from content creators like you.
What are tax deductions?
Tax deductions are expenses that you can use to offset the income in your content creation business. The IRS allows you to deduct the expenses that are necessary to run your business, but there are some limitations.
On your personal taxes, you may have deducted mortgage interest, charitable donations, or medical expenses. Business deductions work the same — they reduce your taxable income, which may lower the amount of taxes you need to pay. But there are some differences. There is no standard deduction to choose when it comes to business expenses. And you have more flexibility on what you can deduct, as long as it is a business expense, and whether you spread the deduction over multiple years.
Why are tax deductions important for content creators?
Content creation is a special type of business. Because you don’t typically have a lot of product or development costs for your business, you need to ensure that the expenses you do have are factored into your income. If you don’t use the deductions available to you, you end up paying more in taxes than you need to — leaving you with less cash to invest back into your business or to pay yourself.
How do you decide what is deductible?
This can be tricky for content creators because you have expenses that may not be typical in another type of business.
The main consideration is whether the expense is truly necessary to run your content creation business. The recording technology you use to create your content, the internet connection that allows you to upload content, and the costs of hosting and maintaining your website are typical tax deductions for content creators.
If you’re a food blogger, then meals out and ingredients purchased to cook at home may be deductions. If you provide makeup or skin care tutorials, then skincare and cosmetics may be deductible. However, if you are buying food or cosmetics for personal use, then those wouldn’t be deductible. Some items may be partially deductible as a business expense if you use them for both personal and business use.
If you still have questions, we have a handy cheat sheet you can download. If you’re in doubt, keep the receipt and ask us for help as you go through your expenses. (And, yes, that is our plug for the services we provide to content creators just like you.)
What documentation should you keep?
As we mentioned just before, receipts are one of the most important documents you need to write off any business expenses.
You might also keep a log of why you need to spend money on certain items so you can justify the deductions. Although the business necessity may seem obvious at the time, if you need to make an argument for an expense in the future, it can be helpful to have documentation that describes your current thoughts. You can do this on paper, in a document, or in a spreadsheet—whatever works best for you.
If you have items that are for both personal or business use, then a log of how much time you’re using the item for business can be helpful in deciding how much of the cost is deductible. For example, you can log how many hours you use your computer for business needs and how many hours you spend on personal tasks. Or if you use your car for business, track the mileage when you drive to business meetings, conventions, or other events so you can deduct that from your income.
Even though it may seem like overkill, keeping more information is better than not keeping enough.
Conclusion
We get it. Taxes and bookkeeping are not why you signed up to be a content creator. That’s why we’re here to help you out. We use our expertise from helping content creators just like you to help you navigate the financial aspects of running your business so you can keep your focus on the creative aspect. Book a call today to see how we can work together to prepare for tax season.
