Why Do I Have to Pay So Much in Taxes as a Content Creator?

So why do I have to pay so much in taxes as a content creator? Being a content creator comes with a lot of perks. You get to be your own boss and that gives you a lot of flexibility and creative freedom! But one of the biggest downsides? Taxes. If you’ve ever felt like you’re paying way more than expected, you’re not alone. Understanding why your tax bill is so high can help you plan better and even reduce what you owe.

You’re Self-Employed, Which Means Higher Taxes

As a content creator, you have to pay more self-employment tax. For traditional W2 employees, self-employment tax is split 7.65% for the employee and 7.65% for the company. As both the employer and the employee, you’re responsible for the full 15.3% of your net earnings. This extra tax burden can make a big difference, especially if you’re not setting aside money throughout the year.

You Don’t Have Automatic Tax Withholding

When you work a W2 job, your employer automatically withholds federal and state taxes from your paycheck. As a content creator, no one is doing that for you. Whether you’re making money from Adsense, Twitch, TikTok Shop, or sponsorships, that income is coming in untaxed.

That means you need to calculate and pay estimated taxes throughout the year. If you don’t, you could end up with a huge tax bill (plus penalties) in April. And when you see the total tax liability all at once, it seems much more daunting than just seeing it taken out in small chunks from a semi-monthly or monthly paycheck.

Your Income is Variable

Unlike traditional jobs with steady paychecks, content creators often deal with fluctuating income. One month can be packed with sponsorships and new patrons on Patreon while the next it’s crickets. This unpredictability makes it harder to budget for taxes. If you don’t set aside enough, you might come up short when tax season rolls around.

Try to set aside 25-30% of your income for taxes as soon as you receive payments. Pro tip, put that money in a high-yield savings account and let it earn you even more money! Regardless, saving money will give you more flexibility during the year and ensure that you aren’t hit with a surprisingly huge bill when you file taxes.

Content Creation Is a Relatively High Profit Business

Compared to many other small businesses, content creation has fewer expenses. This means that much of your income is profit. This is great because you can take home a large portion of what your business brings in, but it also means that much of your business income is subject to taxation. That’s where deductions come in!

Your business expenses may vary depending on your content niche, but it doesn’t change how important it is to track them. Every legitimate business expense can be used to lower your taxable income and in turn, lower your tax bill.

But You May Be Missing Out on Deductions

Although you may not have as many business expenses as a more traditional business, you can deduct business expenses to lower your taxable income. Common deductions include:

• Equipment: cameras, microphones, ring lights, hard drives
• Software and editing tools: Adobe Creative Suite, Canva, StreamLabs
• Internet and phone bills: for business use
• Home office expenses: Internet, a portion of your utilities
• Marketing and advertising costs: Google Ads, social media ads

Keeping track of these expenses throughout the year can significantly reduce your tax bill. Unfortunately, many creators are often too scared to take deductions even though they were legitimate tax expenses. That can end up costing you every year.

Need a guide on what is deductible for content creators? We’ve got a handy tax deduction cheat sheet to help you find more tax savings! (Yes! It’s free!)

State and Local Taxes Add Up

Federal taxes are just one piece of the puzzle. Depending on where you live, you may also owe state and local taxes. Some states have higher tax rates than others, and if you live in a city with local income taxes, that’s another cost to factor in. Consulting a tax professional can help you navigate these requirements.

How to Lower Your Tax Bill

Taxes are just a cost of doing business, and you can’t completely avoid them. However, you can take steps to reduce your taxes.

• Take advantage of deductions: As we mentioned earlier, track all business-related expenses and claim them on your tax return.
• Open a retirement account: Contributing to a SEP IRA, Solo 401(k), or Traditional IRA can lower your taxable income.
• Set up an S Corporation: If you’re earning a significant income (usually $100,000 or more), switching to an S corp could help reduce your self-employment tax burden.
• Make quarterly payments: Paying estimated taxes throughout the year prevents penalties and keeps your tax bill manageable. It may seem challenging to remember to send these payments in each quarter, but penalties can significantly increase your tax bill.

By staying organized, taking advantage of deductions, and planning ahead, you can keep more of your hard-earned money and avoid surprises during tax season. Taking control of your finances now will make your life easier in the long run. 

Taxes For Content Creators and Influencers

We also get it. Adding taxes to your workload isn’t ideal. If you need help staying organized, work with us. We serve only content creators and influencers like you, and we take the bookkeeping, accounting, and tax stuff off your plate so you can focus on creating content! Book a call today!