Introduction & Backstory
Could you introduce yourself?
Conrad Wadowski. I was the co-founder of Teachable and a Creator before that!
What got you involved in taxation for creators?
Despite my financial background, taxes were always a huge challenge for me when I was a Creator. After Teachable was acquired, I dove deep into the tax code and started helping Creators with it through Kick.
Taxation Best Practices
Could you outline some best practices for creators looking to up their taxation / accounting game?
Handling taxes when you’re self-employed is significantly more complex than with a W2 salary. Because you can’t just use the Standard Deduction, my best recommendation is to get the right tools and team to support you to get this handled.
How do some of the world’s most successful creators optimize their taxes?
After working with multiple Creators, the only consistency I can find is that it’s complicated. The tax code treats different sources of income (services, products), investments (stocks, real estate, crypto) and benefits (retirement, healthcare, charitable contributions) differently–so every Creator has to take this into account in order to get their taxes out of the way.
Is YouTube Adsense revenue taxable or does YouTube deduct taxes for creators?
YouTube does not deduct taxes if you’re based in the United States—which means you are responsible for paying taxes on what you earn. If you’re based outside the United States—as an Individual, 24% of your income is held by YouTube; this figure changes to 30% if you’re set up as a Business with YouTube. Check out this write up from Google for more detailed information.
Do creators have to pay taxes on income that is generated via brand deals and affiliate links on YouTube, Instagram, TikTok, etc.?
Any income you receive from sponsorships, affiliate links, Adsense, etc, is taxable. Starting in 2022, all this information will be reported to the IRS. This means you can expect a 1099 from all the places you earned income this year—including YouTube, Stripe and PayPal—by January 31st.
Can creators deduct expenses such as purchasing equipment (cameras, etc.) or hiring independent contractors (editors, thumbnail designers, etc) ?
There are a handful of deductions that are specific to Creators to keep in mind:
1. Bonus depreciation - For equipment expenses (Laptop, Cameras, Microphones) you bought before and during the start of your Channel, Bonus Depreciation can be used to write these off. In some cases, this alone can add up to multiple thousands in legit savings that are almost always left on the table.
2. Per Diem - Every business day you travel, you're able to write off a daily deduction (up to $75 and depends on location) without having to track receipts.
3. Meals/Travel - These expenses can be 100% deductible if you meet the right requirements around receipts and additional information.
4. Contractors - When you pay a US-based contractor for video editing/thumbnails/etc, it's tax deductible if you handle reporting requirements around issuing W9/1099.
5. S Corp - Once you reach $40k in Net Income you can also elect S Corporation status to reduce your taxes even more (and set up retirement, healthcare and other benefits).
This is obviously a lot to organize, which is why we help Creators get it off their plate.
Is there a minimum threshold for income before creators need to start paying taxes?
The minimum threshold of income that’s reported to the IRS in 2022 has dropped to $600. That’s right, if you earn more than only $600 from any online platform (YouTube, Stripe, PayPal, etc) that information will now be reported to the IRS.
How much money should creators set aside for taxes?
Your situation is unique, but 40% is a safe number to set aside. It’s helpful to know that if you’re tracking your expenses closely you can sometimes reduce or even eliminate the need to pay taxes. That said, depending on your income, it’s worth planning early to save yourself the headache.
When should creators incorporate as a business? Which legal form (LLC, C-corp, etc.) and state (Wyoming, Delaware, etc.) is the best from a taxation standpoint?
If you believe you’re going to make more than $50k, it’s a good idea to form an LLC in the state you’re located in as soon as possible. Doing so not only gives you some legal protection, but also allows you to elect S Corporation tax status, which will further help you reduce your taxes as your income increases.
As a creator, what is the best way to find a great accountant / tax advisor to work with?
We work with a handful of CPAs who specialize in working with YouTube and TikTok Creators. Sign up on our site and get on a call with us, and we’ll refer you to the best accounting or legal partners.
Final Thoughts
The future: How is income stemming from web3 (an NFT drop for instance) taxed?
The IRS hasn’t yet provided much guidance when it comes to NFT taxes. See this post from Coin Ledger that goes into some of the different options if you’ve sold, exchanged or received an NFT.
What resources (books, videos, courses, etc.) would you recommend to creators who want to master their finances?
We haven’t seen any sources which are focused on Creators unfortunately. That said, I would plug a handful of YouTube channels like MarkJKohler, LYFE and Karlton Dennis if you want to nerd out.
What's coming up next for you? Anything you'd like to plug?
My new thing Kick has saved Creators almost $1M in taxes. We’re free to use and get everything handled—saving the average Creator we work with $10k while also reducing their audit risk. Check it out!
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