• Join the largest paid sponsorship network. No contracts, no gimmicks, get paid quick. New sponsorships are added daily. Join at famebit.com

Understanding Taxes for Self-Employed YouTubers

Kleineganz

Opinionated Vlogger and Gamer
Joined
Mar 19, 2013
Messages
5,854
Reaction score
2,542
Age
47
Location
Colorado, USA
Channel Type
Vlogger, Gamer
Its sad to see for someone making the hypothetical 1Mil Dollars, they actually only end up getting about half. To me that doesnt make much sense. Its not like that person costs the government more in public services to 'take care of'. Hm. Wonder how it works for Pewdiepie in Sweden and his high earnings. That is a very wealthy country.
Sweden has even higher income taxes than the US. Most European countries do, in order to fund all their social services. It's the standard tax the rich to give to the poor mentality.
 

Uncivilized Elk

I Love YTtalk
Joined
Jun 18, 2015
Messages
819
Reaction score
424
Channel Type
Reviewer
Sweden has even higher income taxes than the US. Most European countries do, in order to fund all their social services. It's the standard tax the rich to give to the poor mentality.
I like how the one person who basically said "But PDP still makes a ****ton of money even after taxes" many pages back got a reply of "That's not relevant, move it elsewhere" but you guys keep willfully discussing how "unfair" the taxation system is when it's just as irrelevant to the topic, haha.
If you make a ton of money, a lot of it will be taxed - that's life in practically every established society that burns through tons of natural resources and has complex infrastructure. I'm not going to be weeping for somebody who can still afford multiple houses after taxes when others can barely afford to rent a home, and it can easily be argued many people from these two categories work equally "hard". Not to mention, while I'm no expert on being old, I'm pretty darn sure the social security portion you have to pay ends up coming back to you when you find yourself decrepit, so really that portion is like a pseudo-investment.


Seriously though, my main point to reviving this thread was to say your initial post is great and super helpful. But since I skimmed most of the thread and a ton of the discussion has simply been on the "ugh, why taxes!" topic I had to give my 2 cents.

One thing I would recommend for this thread though is more prominence placed on estimated taxes since you have to file those quarterly in the US if you make money off something like YT. And I believe there's actually a penalty if you miss those, right? Only reason I even found this thread was because I was reading up on taxes for 2016 (long ways away, but I am procrastinating from something else) and for the first time I learned about needing to file estimated taxes - glad I read about that before the first quarter is due!



I do have 1 question though! Is there a benefit to registering as a business when doing YT other than the liability stuff?
Does filing as an individual vs. a business actually effect your taxes in any way or not?
 
Last edited:

Kleineganz

Opinionated Vlogger and Gamer
Joined
Mar 19, 2013
Messages
5,854
Reaction score
2,542
Age
47
Location
Colorado, USA
Channel Type
Vlogger, Gamer
I do have 1 question though! Is there a benefit to registering as a business when doing YT other than the liability stuff?
Does filing as an individual vs. a business actually effect your taxes in any way or not?
So that really depends on your revenue. When you first start out, you would register an LLC for liability purposes. It doesn't give you a tax benefit, but it's good to establish a business presence, build business credit, etc. Then once you start earning some really solid income (starting around $50,000-$100,000/year), restructuring as an S-Corp and setting yourself up as a employee, you can start to take some tax relief by paying yourself part of your revenue as your salary, and the rest taken as a distribution. You pay less tax on your distribution (only income tax, no payroll tax). I recently did that with my consulting business and it's made a difference.
 

WeiseGamer

Your #1 Source For Indie Gaming
Joined
Feb 15, 2014
Messages
1,384
Reaction score
547
Age
28
Location
Idaho
Channel Type
Gamer
So we had a conversation about YouTube and Taxes and I thought I'd consolidate what I mentioned about how taxes for the self-employed work.
This is US focused because that's where I live and I am not familiar with other countries (however, if you are familiar with another countries tax laws regarding the self-employed, please add your knowledge tot his thread.)

First - if you're a YouTuber and you earn income (either through AdSense or a network) - YES you have to pay taxes on that income.

This table shows you what your marginal tax rate will be for Federal Tax in the US for the 2013 tax year: http://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Marginal_tax_rates_for_2013.

NOTE: in the US you pay Federal + FICA + State income tax (unless you're lucky enough to live in one of the few states with no income tax).

Second - Being a YouTube makes you self-employed. That's why you had to fill out and sign a W9 form (either for AdSense or your network). If you earn more than $600 in a given year, then you should be receiving what's called a 1099-Misc in the mail. This details all your income (and has been reported to the IRS and therefore you can't get around paying your taxes on it).

Third - Being a self-employed YouTuber makes you a "Sole-Proprietor," and this will allow you to subtract things you buy that are related to your YouTube business, from your income (and therefore will not have to pay income tax on that part of your earnings). This practice is known as a "tax write-off". Here is how these tax write-offs (or deductions) are defined by the IRS:

"To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary."

This is roughly how it works:

Annual gross earnings (gross is what you earned before taxes): $100,000
Annual business expenses (anything you spent that could directly benefit your YouTube channel): $20,000
Taxable income = $80,000

NOTE: You can also form an actual business (generally an LLC, or Limited Liability Company), and still be a sole-proprietor. The benefit of forming an LLC is that you are not held personally liable and if a "client" (like a network, Google, etc.) wanted to sue you, they can only go after your business assets, not your personal ones.

Fourth - If you expect to pay $1,000 or more on your taxes in a given year, you have to start paying "quarterly estimated tax" (basically you have to send in an estimate of your taxes each quarter - on April 15, June 15, September 15 and January 15). If you owed exactly $1,000, that means you'd send in $250 each quarter. Now this can be tricky since you have to estimate (guess) how much you will earn for that year and then estimate how much tax you might owe.

Finally - The final consideration is how much tax you could potentially be paying. I know most YouTubers don't earn a lot, but this may help put things into perspective for those of you who are jealous of some of the "big" YouTubers out there.

Let's say you earned $1,000,000 (one million). That easily puts you into the *top* tax bracket of 39.6% (now this is where things get complicated because in the US we have a "graduated" tax system ... if you looked at the table I shared earlier - you see anyone earning $0 - $8925 have to pay 10% federal income tax, and then it's 15% on $8,926 – $36,250, and so forth.)

I did all the calculations (and if you want to see them, let me know) but the total amount of tax you would owe on $1,000,000 is roughly $283,000 (or about a rate of 28.3%). Now this is just Federal Income Tax. There's still FICA (Federal Insurance Contributions Act tax - basically the tax that's used to fund Social Security and Medicare), and State Income Tax as well.

The rate of FICA for self-employed people is 15.3% - 12.4% for Social Security + 2.9% for Medicare (employed people don't pay as much because the employer contributes 50% of the social security portion).

Anyhow, the good news here is that the 12.4% only counts for the first $113,000 of income earned, or around $14,000. Medicare is taxed on every dollar you earn, no matter what - so for $1,000,000, that comes out to be $29,000, for a total of $43,000. Let's add that to our Federal Income Tax and we get roughly $326,000 (just a tiny bit more than 30%).

Finally, there is a new 0.9% healthcare "surcharge" (aka tax) on every dollar you earn over $200,000. So that's 0.009 x $800,000 = $7,200. Adding that to the Federal Tax brings us to a grand total of $333,200 (33.3%).

Now most of the really *big* YouTubers live in California so now we need to consider the California Income Tax. They also have a graduated system, but for $1,000,000 in income, you will pay roughly $110,000 in State Tax.

So that brings us to our final calculation:

$283,000 (Federal Income Tax) + $43,000 (FICA) + $7,200 (healthcare surcharge) $110,000 (CA State Tax) = $443,00 or 44.3% (and that will leave you with $556,800).

Disclaimer: I didn't take into account any tax write-offs for this final piece - I just wanted to show how much money anyone earning that much, while being self-employed, will pay.

So is OP still good for 2015/2016 now?

This may be the first year I make over $600 total between YouTube, Twitch, etc. under my sole proprietor Tax ID I created in 2014. I haven't filed taxes under that ID for 2014 and wont for 2015 as I didn't earn anything really (way under $600).

I am saving everything that would be considered tax write-off like Steam Game purchases and equipment for my channel, as well as any paid work like video editing or graphics. If I make like $650 off YouTube/Twitch, stuff that would be considered self-employed, can I put it under my tax ID for WeiseGamer and use those write-offs?

Also how do you form a LLC?
 

Kleineganz

Opinionated Vlogger and Gamer
Joined
Mar 19, 2013
Messages
5,854
Reaction score
2,542
Age
47
Location
Colorado, USA
Channel Type
Vlogger, Gamer
So is OP still good for 2015/2016 now?

This may be the first year I make over $600 total between YouTube, Twitch, etc. under my sole proprietor Tax ID I created in 2014. I haven't filed taxes under that ID for 2014 and wont for 2015 as I didn't earn anything really (way under $600).

I am saving everything that would be considered tax write-off like Steam Game purchases and equipment for my channel, as well as any paid work like video editing or graphics. If I make like $650 off YouTube/Twitch, stuff that would be considered self-employed, can I put it under my tax ID for WeiseGamer and use those write-offs?

Also how do you form a LLC?
  1. Check online for the current us federal marginal tax rates (I'd paste a link, but I ran out of cash and lost my VIP status, sorry).
    • You will have to look up the state tax rates in your area on your own.
  2. While you do have to start claiming your self-employment income this year because of your earnings, it won't be enough to make any significant impact on your taxes.
  3. Yes you should be able to write off at least part of your expenses for making videos, even if they total more than what you earned (therefore resulting in a "loss"). However if you are employed in any other way, that may complicate things and at that point I'd recommend consulting with a CPA (certified public accountant).
  4. I used Legal Zoom to form my LLC back in 2008.
 
  • Like
Reactions: WeiseGamer

WeiseGamer

Your #1 Source For Indie Gaming
Joined
Feb 15, 2014
Messages
1,384
Reaction score
547
Age
28
Location
Idaho
Channel Type
Gamer
  1. Check online for the current us federal marginal tax rates (I'd paste a link, but I ran out of cash and lost my VIP status, sorry).
    • You will have to look up the state tax rates in your area on your own.
  2. While you do have to start claiming your self-employment income this year because of your earnings, it won't be enough to make any significant impact on your taxes.
  3. Yes you should be able to write off at least part of your expenses for making videos, even if they total more than what you earned (therefore resulting in a "loss"). However if you are employed in any other way, that may complicate things and at that point I'd recommend consulting with a CPA (certified public accountant).
  4. I used Legal Zoom to form my LLC back in 2008.
Thanks!

As for 3), I do not hold you liable in any way shape or form for your reply previously, current, or in the future, but what complications may come up? I work full time in a day job for about $40k a year.
 

Kleineganz

Opinionated Vlogger and Gamer
Joined
Mar 19, 2013
Messages
5,854
Reaction score
2,542
Age
47
Location
Colorado, USA
Channel Type
Vlogger, Gamer
Thanks!

As for 3), I do not hold you liable in any way shape or form for your reply previously, current, or in the future, but what complications may come up? I work full time in a day job for about $40k a year.
Well it can get complicated in terms of how much/what you can expense, especially if your side business earns so little. The IRS may see it as suspicious and try to audit you, so you'd need to know what may or may not be seen as a red flag.
 
  • Like
Reactions: WeiseGamer

just Moto

Super Poster
Joined
May 24, 2015
Messages
581
Reaction score
317
Channel Type
Youtuber
Would someone have a sample profit and loss statement for running a YT Channel they could share?

Thanks
 

Kleineganz

Opinionated Vlogger and Gamer
Joined
Mar 19, 2013
Messages
5,854
Reaction score
2,542
Age
47
Location
Colorado, USA
Channel Type
Vlogger, Gamer
Would someone have a sample profit and loss statement for running a YT Channel they could share?

Thanks
I don't have a YouTube specific profit & loss statement (I only earn about $400/year from my 3 channels combined), but I do have one for my small business if you'd like to see what one looks like. Send me a private message if you'd like to see it.
 

blackomen52

Well-Known Member
Joined
Oct 22, 2016
Messages
53
Reaction score
10
I live in Croatia and in Croatian AdSense Terms it states that the income that I receive from Google is not taxable. I guess I'm good then :D