A Business License and why it's important!

[FamilyToyReview]

In most states I'm pretty sure starting off with that is literally doing nothing.

If you're making money from YT and filing taxes you're automatically functioning as a self-proprietorship. Some states have guidelines on getting some additional tax forms and whatnot, but many states don't have any of those requirements.

'Nothing' is a bit of hyperbole. I dunno about other states. But most of my taxes are federal anyways. And for a small youtube channel (most of us?) there are few ways to report our additional income for federal income tax. I think the most relevant are business or hobby.

A hobby is not the same as having a business and there are different tax implications. Like for a hobby you cannot deduct more expenses than what you earned in hobby income.
https :// www. irs. gov/uac/Newsroom/Five-Basic-Tax-Tips-about-Hobbies

So if youre just starting out you will have more expenses than the meager income you begin to earn on youtube. You could be making a lot of capital expenditures for your new business where it doesnt make sense to pay the same amount of tax without adjusting your taxable income through relevant deductions.

So if i earn 40k a year with primary job, but im taking this youtube thing seriously and spent a couple thousand dollars to get started, my taxable income should not be the full 40k. If i only earned $200 from youtube last year i could do nothing special and file the $200 income as a hobby and deduct $200 in expenses.

But remember i spent thousands setting up this youtube venture. The alternative is to prepare and do the extra work in filing for a business license (which is actually not convenient to do). and then i could deduct more of my expenses so that my taxable income is a more appropriate level as a sole proprieter.

And there are llcs and Etc but thats more work involved.

So there is value in have sole prop business as opposed to not having one. But not everyone has the same tax situation so the value could vary.

Disclaimer: im not a tax professional. Dont use this info to make your own tax decisions. these are just opinions. I could be wrong, talk to a tax professional.

 

[Uncivilized Elk]

OK, let me rephrase:
Unless you're operating YT at a net loss, being a sole proprietor is practically automatic in most states when it comes to online earnings from sources such as AdSense. For my state, I do have to get a business tax license for $20 (lifetime at least) and pay a general excise tax on my earnings (which blows might I add). But many states don't have anything of the sort, and unless you want to register an official name, you can simply continue operate the channel as usual without needing any forms filled out, and come tax time you can report income as a sole proprietor.

 

[FamilyToyReview]

OK, let me rephrase:
Unless you're operating YT at a net loss, being a sole proprietor is practically automatic in most states when it comes to online earnings from sources such as AdSense. For my state, I do have to get a business tax license for $20 (lifetime at least) and pay a general excise tax on my earnings (which blows might I add). But many states don't have anything of the sort, and unless you want to register an official name, you can simply continue operate the channel as usual without needing any forms filled out, and come tax time you can report income as a sole proprietor.

Yup it depends on the deductions to take. especially the first year is when expenses are the highest because you get a new pc or camera etc etc and your youtube earnings are at the lowest. Most of our taxes are federal so i focused mostly on that.

 

[subversiveasset]

Just from reading a few comments on this thread, there are a few things that have been said that are sending off some alarm sirens in my head, I want to put some things out here.

(1) From a federal tax perspective, whether you are a business or not isn't really dependent on whether you have a license. You might want to get licenses for many other reasons (e.g., state and local regulatory requirements [like Uncivilized Elk's ridiculous Hawaiian situation XD], to set up different brandings and names in a legal capacity, the limited liability offered in an LLC vs unlimited liability when operating as a sole proprietorship, etc.,), but it's not really necessary from a federal taxation perspective (and if you're talking about deducting expenses, you're generally talking from a federal taxation perspective.) You don't need to have a separate legal entity or business license to put stuff on Schedule C. Uncivilized Elk is correct that sole proprietorship is assumed (I mean that's really what it means from a federal taxation perspective. There is no legal entity separate from the owner.)

(2) As others have noted, really, from a federal perspective, the analysis hinges on whether you are operating a trade or business or whether you're running a hobby. It's true that businesses don't always make profit every year (and net operating losses can often reduce income elsewhere), but there are a holistic process to determine whether someone is running a business or just doing a hobby, and I think a lot of Youtubers probably would fall on the hobby side of things.

(3) PLEASE do not try to file your loss-making hobby as a non-profit. That's not what Section 501 is for.

(4) As someone who works on R&D credits for a significant portion of my job, I'd be very interested in what sort of "research material" anyone thinks they are incurring as part of their youtube channels. Not saying it can't happen, just....

Ultimately, I am not your tax accountant, so definitely consult with one.

 

[FamilyToyReview]

Just from reading a few comments on this thread, there are a few things that have been said that are sending off some alarm sirens in my head, I want to put some things out here.

(1) From a federal tax perspective, whether you are a business or not isn't really dependent on whether you have a license. You might want to get licenses for many other reasons (e.g., state and local regulatory requirements [like Uncivilized Elk's ridiculous Hawaiian situation XD], to set up different brandings and names in a legal capacity, the limited liability offered in an LLC vs unlimited liability when operating as a sole proprietorship, etc.,), but it's not really necessary from a federal taxation perspective (and if you're talking about deducting expenses, you're generally talking from a federal taxation perspective.) You don't need to have a separate legal entity or business license to put stuff on Schedule C. Uncivilized Elk is correct that sole proprietorship is assumed (I mean that's really what it means from a federal taxation perspective. There is no legal entity separate from the owner.)

(2) As others have noted, really, from a federal perspective, the analysis hinges on whether you are operating a trade or business or whether you're running a hobby. It's true that businesses don't always make profit every year (and net operating losses can often reduce income elsewhere), but there are a holistic process to determine whether someone is running a business or just doing a hobby, and I think a lot of Youtubers probably would fall on the hobby side of things.

(3) PLEASE do not try to file your loss-making hobby as a non-profit. That's not what Section 501 is for.

(4) As someone who works on R&D credits for a significant portion of my job, I'd be very interested in what sort of "research material" anyone thinks they are incurring as part of their youtube channels. Not saying it can't happen, just....

Ultimately, I am not your tax accountant, so definitely consult with one.

good point on number 2. This probably just is a hobby for most of us. although once you start paying for advertising i guess youll have to reconsider the hobby business thing.
Im determined to do this for a living though!