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 stars, do not get paid from advertisements. Still, creators can earn anything from $100 to $1 million per post when gifts from fans, endorsements, merchandise, and other revenue are included.
Many TikTok creators do not see the money they earn as revenue. Since many are in their teens, they may not realize that they must pay taxes on the money they earn. However, there are also many social media influencer deductions one can benefit from as a creator. Thus, TikTok tax planning services are critical to making the best of your income as a creator.
For example, you can deduct expenses related to your content creation. This includes the Internet, software, and 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.
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TikTok Hobbyist Tax Versus Careerist Tax
TikTok influencers are required to pay taxes to the US government. Money earned from stream donations, sponsors, or any other source is added to determine an influencer’s tax responsibility. It is possible to make deductions for items or services used when running a TikTok account. Tiktok accounting, taxes and deductions are handled differently for hobbies versus careers (business).
How to know if the money earned from TikTok will be seen as business income:
- Active Improvement: If you are taking steps to improve your TikTok account to earn more money, you are treating things like a business.
- Financial Dependence: If you rely on the money made from TikTok to live and pay bills, it is less of a hobby and more of 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 a business.
In addition to these factors, the IRS will evaluate your experience. If you earned money in the past from social media, it would likely be viewed as a business. 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 the taxes you will pay.
The Difference Between TikTok Hobbyists and Careerists
As of 2018, hobbyists are no longer allowed to make deductions. At the same time, hobbyists are not required to pay self-employment tax on the income they make from their hobbies. However, hobbyists must fill out line 21 on the 1040 form labeled “other taxable earnings.”
TikTok careerists, on the other hand, will need to pay income tax and self-employment tax. For 2021, self-employment tax is 15.3 percent. From the standpoint of the IRS, the income an influencer earns, even if they work for themselves, is considered business income.
This means that you will pay Social Security and Medicare taxes. The good news is that you can offset some self-employment taxes with deductions. The self-employment tax rate is fixed. However, your income tax rate will vary based on the amount of money you make during the year. If you make under $9,875, your income tax rate is 10 percent. This number gradually increases up to 37 percent for those who make $518,401 or more.
Save Money with Outsourced Tax Planning
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 at helping entrepreneurs like yourself make the most of their financial planning. Learn more about the TikTok accounting and tax preparation by talking to our discovery team.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.