Social Media Influencers - Yes, You Have to Pay Taxes on That!
The rise of social media has
opened doors for countless individuals to gain popularity, influence, and even
financial success. However, with great opportunities come great
responsibilities, including paying taxes on the income earned. The recent New
York Times article Lora Kelley, "They Went Viral and Made Money. Now They Owe
Taxes," sheds light on a growing problem for many social media influencers
who are struggling to keep up with their tax obligations.
According to the article, many
social media influencers have found themselves in a precarious situation where
they have earned significant income from brand partnerships, sponsorships, and
ad revenue, but have failed to properly report or pay taxes on that income.
Some influencers have even admitted to intentionally avoiding taxes, thinking
they were too small for the IRS to notice or that they could get away with it.
However, as the article notes,
the IRS is now cracking down on influencers who are not paying their fair share
of taxes. The agency has reportedly launched several audits and investigations
into social media influencers, and some have already been hit with hefty fines
and penalties, and some with jail time.
Part of the IRS enforcement strategy
is to demonstrate to taxpayers the wrong way to approach things, publicize it
heavily as a demonstration of the adverse consequences of failure to comply
with tax laws. It seems as each generation has its own “poster boy” of what not
to do – Leona Helmsley in the late 1980s; Richard Hatch 2006; and more recently
Julie and Todd Chrisley in 2022.
So, what can social media
influencers do to avoid the same fate? The first step – Get a tax guy. Now. And
by tax guy I mean a professional, like me, an Enrolled Agent, as a TaxConsultant. Tax consultants can help influencers understand the tax laws and
regulations that apply to them and ensure that they are compliant with all
reporting requirements. They can also help influencers identify deductions and
credits that can reduce their tax liability.
Second - Influencers must recognize
that any income earned from social media activities is subject to taxation. Take
to heart the words of 26 US Code Section 61 – Gross Income defined:
(a)
General Definition. Except as otherwise
provided in the subtitle, gross income means all income from whatever source
derived, including (but not limited to) the following items:
Spoiler Alert! This includes
income from sponsored posts, affiliate marketing, and even donations received
from fans. Influencers should keep accurate records of their income and
expenses and report all income on their tax returns. As you running a business,
you’re now entitle to deduct expenses that are reasonable and necessary. What
are those expenses? See Step 1 above.
Finally, social media influencers
should be proactive about addressing any past tax liabilities they may have.
This includes filing any past due tax returns and paying any outstanding taxes,
penalties, and interest owed. The IRS offers payment plans and other options
for taxpayers who are struggling to pay their tax debts, and a tax consultant
can help influencers negotiate with the agency and develop a plan to get back
on track.
Failing to report and pay taxes
on social media income can result in significant fines, penalties, and even
legal action. Therefore, influencers should take the necessary steps to stay
compliant with tax laws and regulations, seek the guidance of tax
professionals, and address any past tax liabilities they may have. By doing so,
influencers can avoid the financial and legal consequences of tax evasion and
continue to thrive in the world of social media.
