Tax season is upon us, and that means it’s time to sit confused in front of a computer wondering what in the world you’re supposed to be doing with your freelance income. Fear not. While the tax code is incredibly complex, when it comes to breaking down your online content creation business, answering a few basic questions gets you most of the way there.
Let me do what I can to answer those questions as a CPA who not only worked for the IRS, but also focuses on supporting online content creators of all types in my own practice.
(Please note, this article is to be used for general information only. Not all circumstances are the same, and you should consult with a tax professional if you are unsure about anything).
Do you have to pay taxes from Twitch streaming and YouTube income, even if it’s just a hobby?
Yes. While some people angrily insist that streaming isn’t a “real job,” it is taxable income regardless of if whether it is a hobby or a business. How involved that becomes on the tax returns depends on each streaming activity, which we will get into below.
One thing I will note—if you have made a very small amount of income from streaming and otherwise have no taxable income, you likely won’t have to pay taxes on that.
Do you have to pay taxes for Twitch Affiliate?
Twitch Affiliate (or the equivalent on Youtube) is the threshold at which you can start potentially receiving payouts for your streaming. However, this does not make it an automatic business. Plenty of hobby streamers reach Affiliate status, but if they are not making an effort to push the activity into being a profitable business, they are considered a hobby in the eyes of the IRS.
If you are a hobby streamer, the income you receive is to be reported as “Other Income” on your tax return. This lets it be taxed at a more favorable rate but does not allow you to take any deductions on it.
Why are career streamers taxed differently?
When you file streaming as a business, rather than being reported under “Other Income,” it is instead reported under “Schedule C.” Schedule C allows the streamer to take business deductions against their income, reducing the taxable portion of that income.
Because you are self-employed by doing this, your net income here is subject to employment taxes, as well as the standard income tax. Employment taxes are things like Social Security and Medicare, which you pay into, but typically if you are an employee, your employer covers half of those.
Since you are both the employee and employer in this scenario, you are left paying both portions (which amounts to an additional 15.3% in taxes on your net income).
You do get a deduction from the employer portion on your return, but it can make your taxes higher than they would be otherwise.
What counts as income? Do Twitch Tips and Donations count as taxable income?
Income is the first thing that we need to lock in on. For streaming, this can include revenue from bits, subscriptions, and yes, other tips and donations from your community. Both Twitch and YouTube are good about providing tax forms for any income that goes through their system (which will be one or two 1099s available on their portal).
For outside revenue sources (think Ko-fi, Streamlabs, Patreon), depending on how much you earned through their platforms they may or may not issue you a 1099 form. In all cases, you can always go onto your dashboard on the respective sites and look up your total payouts for the year.
Remember, just because you didn’t receive a 1099 form does not mean the income is non-taxable.
Tax deductions for YouTube and Twitch streamers:
This is a difficult question to answer because a lot of it depends on your content. Under the U.S. Tax Code business expenses must be “reasonable and necessary” in order to be deducted from the return. This is meant to be vague so it could apply to a variety of businesses and industries, but when it comes to content creation, it becomes especially fractured.
Career streamers are able to take advantage of tax deductions for streaming equipment, software, internet connection, commissioned services such as artist fees, and charitable donations of up to $300.
No one master list will cover everything, but here are a few ideas on some common items:
- Video equipment
- Audio equipment (mics, boards)
- Set design
- Software purchases
- Subscriptions for content-related items
- Computer hardware
- Game purchases
- Emote art
- Start/Ending screen commissions
Depending on what you stream, some uncommon items may fit as well. For example, if you create cosplay on stream, the supplies to make your cosplay may be deductible. Or maybe you do at-home science experiments on stream. The supplies for that may qualify as well.
But remember, you must be honest about the business use with everything on your return. You can’t just buy something, show it on stream for 5 seconds, and be able to claim it as a deduction. It must make sense as a regular part of your business.
What about my rent or other big purchases?
If you have a dedicated streaming space, you could potentially deduct a portion of your rent and utilities for it. What you need to figure out is the percentage of space your office takes up relative to the complete living space, and apply that percentage to your rent and utilities.
For example, if you use a spare room that’s 100 sq/ft, and the apartment you rent is 1,000 sq/ft total, you can deduct 10% of your rent against your streaming income.
If you purchase a large asset for streaming (for example an expensive new computer), you can deduct it if it is truly for business, but you may need to depreciate it.
Large assets over $2,500 are supposed to be depreciated over their “useful life.” This means instead of getting a deduction of $2,500 one year, you may have a deduction of $500 over the course of 5 years. You still get the deduction, but it’s over a longer period of time.
When do I need to pay my taxes? What happens if you don’t file your taxes for Twitch and YouTube?
When filing for the current year, your taxes are due by April 15, 2023. If you extend your return to file later, the taxes are still due by this date. Failing to pay your taxes is not an immediate black mark with the IRS, but interest and penalties will begin to accrue immediately and compound daily until the amount is paid off (interest rates fluctuate between 3-6% annually, so the daily amount is typically not too terrible).
For future years, since you are self-employed, it is a good idea to make quarterly estimated payments to avoid penalties and a large tax bill all at once come next April. You should set aside money from every payout and pay 25% of your expected total tax due every quarter.
Deadlines for quarterly taxes
The due dates to pay quarterly taxes are April 15 (first quarter), June 15 (second quarter), September 15 (third quarter), and January 15 of the following year (fourth quarter). Dates are sometimes moved forward due to weekends and holidays.
How to file taxes as a Twitch streamer or YouTube streamer:
The best option for you depends on several factors, but a few choices are laid out below.
If you are a hobby streamer or are just starting out and have made a very minimal amount of income with few or simple expenses, there are free file options available at the IRS website here. Many of these list out the requirements for free filing, and will have a smaller fee for including your state tax return filing along with it.
The main downside with the free file options is they are guided, but will not help ask additional questions to dig for potential deductions. This may not matter for smaller streamers, but as you grow you will want additional assistance navigating the tax return to maximize deductions without doing anything wrong.
While major tax chains offer live help, it is often best for someone growing their business to seek a professional who can grow with them. Finding a local or online tax preparer who specializes in small business or content creation can help establish a relationship with someone who will help you maximize deductions and also learn enough about your business to help you plan for the future.
And remember, taxes aren’t scary and you won’t go to jail for messing up. They’re poorly taught and the system can get complex, but if you focus solely on your business, you can find your path to success.