You may be surprised now that you realize your TikTok revenue is taxable. However, there are TikTok accounting strategies that can make your tax bill substantially lower.
TikTok stars, unlike YouTube or other social influencers, do not get paid for advertisements. Still, creators can earn a considerable amount per post when gifts from fans, endorsements, merchandise, and other forms of revenue are taken into account.
Ways in which TikTok stars monetize their accounts or earn revenue:
- Creator fund payments: While TikTok doesn’t give its creators revenue from ads; it does fund its stars through its creator fund payouts when a TikTok star meets certain requirements.
- Brand partnerships: TikTok stars can monetize their accounts by partnering with brands when engagements on their posts are of benefit to the brand.
- Using TikTok as a marketing platform for the promotion of goods offline: TikTok stars often use the platform to promote merchandise or goods that they produce as a brand.
Many TikTok influencers may not consider their earnings to be taxable revenue, but the IRS guidelines suggest that any person earning an income from social media is considered an independent contractor that needs to pay tax. Fortunately, there are a number of social media influencer deductions that TikTok influencers can include in their tax returns to possibly lower their tax obligation.
It is important for TikTok earners to study the tax requirements and employ tax planning services to ensure that they are meeting the requirements of the IRS.
When it comes to deductions, you can claim for expenses related to your content creation. This includes the internet, software, and filming or camera applications used. You can even deduct a portion of your rent or mortgage if a part of your home is specifically designed for business. Photography equipment, charitable events, commissioned work, and travel expenses can also be deducted, but it is important to understand the deductibles and the apportionment thereof, especially if the expenses, for example, your cellphone, are used for both business and personal reasons.
Simply send the form to your email to calculate your business tax deductions
Is Your TikTok Account Seen as a Source of Income?
You may see yourself as a TikTok user maintaining your account as a hobby. But you also happen to benefit financially every now and then. Does this mean you are liable to file taxes for it? The following IRS guidelines can help you determine this.
- Active Improvement: If you are taking steps to improve your TikTok account to earn more money, you are treating things like a business and you would be required to log tax information with the IRS.
- Financial Dependence: If you rely on the money made from TikTok to live and pay bills, it is a business.
- Financial Intent: If you take active steps to make money from your TikTok account, it is a business.
- Financial Loss: If your TikTok influencer career causes you financial loss that is outside of your control, the IRS will usually view it as a business.
- Record Tracking: If you keep track of your income and expenses, your TikTok account is likely considered a business.
In addition to these factors, the IRS will evaluate your experience. If you earned money in the past from social media, your account could likely be viewed as a business at present. The amount of money you make each year from social media and future prospects, which is how much you will earn if you continue to be an influencer, will also be used by the IRS to evaluate whether your account is considered a business account and to establish the taxes you will pay on it.
Tax Implications for Irregular vs Regular TikTok Earners
TikTok stars that don’t receive regular or predictable payments from the platform, may be considered for gig worker tax. Payments from part-time or temporary work paid in cash, property, goods, or cryptocurrencies must be reported to IRS by submitting a 1040 tax return.
Regular TikTok earners, who are considered careerists, or TikTok businesses, will need to pay income tax and self-employment tax using independent contractor tax guidelines. It is advisable to consult with an expert to establish the nature of your TikTok earnings and to know how to report your earnings to the IRS.
Proper planning is essential to make sure that you pay the right amount in taxes without missing out on any deductions you earn. Fusion CPA is experienced in helping entrepreneurs like yourself make the most of their financial planning.
Learn more about TikTok accounting and tax preparation by talking to our team of experts.
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