5 Common Myths About Taxes for Content Creators
Rony Fogain, CPA, is the author of Creator’s Corner: Tax Write-offs and Effective Planning, an all-in-one must-have guide for content creators, and founder of Fogain & Associates, a firm dedicated to helping creators navigate the world of taxes. We asked Rony to share his top tax tips for the burgeoning industry of content creators.
Content creation has provided a generation with a new career path where they can flourish financially while doing what they love. The rise of this new profession does not come without challenges though, as many creators struggle when tax season arrives to navigate deductions and expenses within this industry. Here are five myths I commonly hear about taxes for creators that need to be busted.
1. Gifts received by brands are not taxable
By far the most common misconception I have seen with my clients is the taxable event arising from brand gifts. Brands often prefer to offer creators products instead of cash in exchange for services. Creators should be aware that these gifts are taxable benefits to the creator, meaning they’ll be considered income, while the product is a tax deduction to the brand as part of their advertising expense. As a result, the government takes their tax cut through the taxable benefit placed on the creator, which is equal to the fair market value of the brand gift.
The lesson is to always negotiate to be paid in dollars for your services. Since you are taxed either way, it’s in your best interest to have the cash on hand (liquidity) to pay what’s owed on your taxes.
2. Upkeep expenses are deductible personal brand expenses
The most attractive part about being a content creator is that your business is so closely tied to your personal life and hobbies. This raises the question for most creators, who feel that since they ARE the business, they should be able to deduct their appearance and upkeep fees as a brand expense.
For most cases, upkeep expenses such as haircuts, makeup and cosmetic surgeries will not be deductible expenses. Through past case studies and court rulings, these have been deemed to have too much of a personal benefit to the creator to be deductible. A good rule of thumb is to ask yourself: “If I were not in the business of content creation, would I still spend money on this?”. For most people when it comes to upkeep, the answer would be yes, reinforcing the personal benefit.
This does not mean that ALL upkeep expenses are invalid. With the right business use and documentation (i.e. appearance requirements within contracts), upkeep expenses can be valid business expenses. Always consult with a CPA specializing in your industry.
3. The clothes I wear in videos are deductible since I am creating content
Clothing attracts a lot of creators’ eyes when it comes to business expenses. After all, whatever you wear while creating content should make the clothes valid write-offs, right?
When discussing with clients, I always lead them to categorize clothing into three buckets: uniform, advertising and regular. This is key because two of these categories are tax deductible, while the other is not.
A uniform expense is a piece of clothing that is necessary for the work being performed. In other words, you would not wear it if not for your tasks. Think of steel-toed boots, hazmat suits, laboratory coats, etc. Business suits are excluded here, as although they are commonly worn in corporate settings, they also provide a personal benefit in formal settings such as galas, weddings, etc.
Advertising clothing expense, commonly known as “branded clothing”, is the act of placing your business brand logo on a piece of wear that becomes a promotional aspect of your creator business. When creating content while wearing your brand, its goal is to attract customers and potential partners and prospects. This legitimate tax strategy is how, for instance, fitness creators are able to deduct their own branded gym clothes in videos.
These two types of clothing would classify as valid business expenses for creators. Any piece of clothing falling outside of these two buckets is deemed regular clothing, which is not tax deductible. Due to the ambiguity of the creator industry, always consult with a CPA if you are unsure.
4. I can deduct my full rent and other home office expenses
Creators tend to record content in their own homes; thus, their home is a crucial business expense for the work being performed. So yes, you can deduct rent and home office expenses, but there are details you should be aware of.
Your rent expense will be deemed to be your actual rent cost per month, multiplied by the ratio of business use within your home. This ratio is equal to the square footage of your office space/studio, divided by the total square footage of the home. For instance, with a monthly rent of $2,000 and with a condo space of 1,000 sq ft, with 200 sq ft being the unique office space, the tax-deductible rent expense will be $400 a month, or $4,800 annually.
Other home expenses can be deducted in a similar manner by applying the business square footage percentage to their cost (i.e. mortgage interest for owners, hydro and electric bills, repairs and maintenance, etc.) It is important to note that mortgage principal is not deductible - only the interest portion is. Consult with a CPA who specializes in your industry.
5. I need to incorporate to capture tax write-offs
This misconception is all too common. The reality is that tax write-offs are just another word for “business expense”. This means that your ability to capture them does not depend on having a specific legal structure, like a corporation, but instead on having a legitimate business.
The moment that you are in the act of pursuing your creator business - whether through your first piece of content, first advertisement or first merchandise - you are now running a creator business and can capture tax write-offs incurred to help run your business.