But…I Was Just Doing This For Fun!
Just because you weren’t expecting to make money by becoming an influential personality on social media doesn’t mean you won’t have to report this income on your tax return. In fact, as we shared with you in our recent post, the IRS has graciously provided some guidance on its website to help gig workers make it easier to file and pay taxes. Now for the double whammy: while you are required to report your income from all sources, regardless of whether your activities are derived from a true business activity or merely a hobby, you are limited in how much, if any, of your hobby-related expenses can actually be deducted on your tax return. Legitimate business expenses on the other hand, are almost always fully deductible – even if your expenses exceed your income (leading you to have an overall net loss, and not a gain). Thus, while you might not have actually ventured onto social media with the goal of running your own business, and thought that being a rideshare driver on the weekends wasn’t going to make you rich, you’ll see rather quickly, the advantages of legitimizing your activities as a business. (That is, unless you’d rather pay more in income taxes. Disclaimer: you’ll want to talk to a tax accountant about this for more specific guidance).
Can I Just Pretend I Didn’t Know I Had To Do Any of This and Hope It All Goes Away?
If you’ve never been chosen by the IRS for one of its infamous audits, it can be very tempting to ignore filing your taxes on time, or underreporting your income in the hopes that they never figure it out. In the past, this strategy might have worked. However, the same technology that made it possible to make money on these side gigs is making it easier for the IRS to use predictive analytics and cognitive technologies to figure out who’s playing by the rules, and who’s trying to get away with tax evasion (a felony). A word of advice: ALWAYS file your tax returns – and pay your taxes when they become due. Oh, and one more thing, if you think you’ll owe more than $1,000 in taxes in a given year, you’ll be expected to make estimated tax payments each quarter.
Where Do I Begin?
The goal of most business entities is to stay in business and avoid bankruptcy. By earning the coveted distinction of being a social media influencer and becoming “self-made”, you have essentially created a business of your own. You are your own brand. And if you’re really good at what you do, you might even find yourself in a position to hire employees, create jobs, and make a name for yourself among your community. It may be safe to assume that you will want to continue making money from social media activities for as long as you can. It is for this and many other reasons that you should treat your business with the same prudence and diligence as you would your personal (self-made) brand.
For most, the task of tracking business expense receipts may seem daunting. Luckily, there are some innovative apps that help to simplify this work and even lighten your burden. QuickBooks: Self-Employed is one such tool – it can help you keep track things like those rideshare miles you drive every weekend, income generated from those viral videos, expenses incurred upgrading your recording gear, and estimate quarterly payments for self-employment taxes. You can also run reports, send invoices to corporate sponsors you might have signed contracts with, and accept electronic payments from your business partners and donors.
Another option to consider are consulting services from your favorite trusted business advisor. Today, getting the advice of a qualified accountant and consultant is much more affordable than it was over the last decade. At Xerebro, our mission is clear: “We serve to be the leading trusted business advisor for the next generation of self-employed entrepreneurs, startup companies, and small businesses by delivering world-class professional services that are economical, impactful and smart.”
Happy New Year!