It's TAX season

[subversiveasset]

I am a tax accountant, but I am not your tax accountant, and I don't specialize in individual taxation, so I cannot and am not providing specific advice in this comment...just some general thoughts (that yes, you should consult with your tax advisor):

1) You don't *necessarily* have to have any separate registrations or business to report income on Schedule C (Profit or Loss from Business) income, especially as a sole proprietorship. You may wish to do so for other benefits (e.g., state regulatory requirements, branding (if you don't want to do business under your own name, etc.,) but from a federal tax perspective, that's not necessarily the driving factor.

2) If Google/YouTube is sending you a 1099-MISC (which they would if you earned over $600 in the year in revenue), then that means that they do not consider you an employee (this is obvious), and that you are considered an independent contractor (this may not be as obvious) who operates his own business (this doesn't seem to be obvious based on the comments that have been posted so far.) So the presumption is that you are operating as a business if you have a 1099-MISC.

3) Businesses can take ordinary and necessary expenses against income when getting to net profit or loss from the business. Net profit or loss from the business then goes to form 1040, where it gets added with other sources of income (e.g., W-2 wages, and so forth) and schedule SE...

4) That Schedule SE? That's for self-employment. Please note that you're on the hook for social security and medicare taxes on self-employment. (These are things your employer would automatically withhold from your paycheck, but, per (2) above, you're not an employee of Youtube, so they don't withhold anything!)

5) Please note that this analysis is for the business. You can't just take your personal expenses against youtube revenue, because for your personal taxes, you are subject, as mentioned, to standard deduction or itemized deduction. What you *can* do is recognize the expenses that are for your "business" (that is, your channel) and deduct those against income.

6) TECHNICALLY, if you have a business, you can generate a net loss, and as an individually, you can take a deduction of that NOL against your other sources of income...this is where a lot of the "hairiness" of being a sole proprietor could come into play with the IRS though, because the IRS has reason to be suspicious. Imagine the following situation that the IRS would NOT want:

You are a video gamer. You love playing games. It is your hobby. You hear from a friend that you can make money off youtube from your let's plays, and you hear that you can deduct business expenses relating to your channel. So you say, "OK, I'm going to make a Let's Play channel, and then treat my video games as expenses. I'm going to make sure that I not only wipe out any revenue from youtube, but that I can take a loss against ordinary income. I am a genius."

This gamer should expect to be audited, because...​

7) From a tax perspective, a trade or business is conducted for profit. That doesn't mean every business has to be profitable every year (a lot of them aren't), but so-called "businesses" that make losses every year look very suspicious to the IRS...the IRS would like to reclassify these as "hobby losses" (which are NON-DEDUCTIBLE losses incurred as a result of doing an activity for pleasure rather than for business). There are a lot of factors that go into whether something is a hobby or a business, and you can look up "hobby losses" if you're interested. The short answer is that for most part-time Youtubers, things don't look so great.

8) If your youtube is treated as a hobby for tax purposes, things look much worse, tax wise. You can deduct only up to your revenue as expense (so no net operating loss), BUT it's not so simple. Hobby expenses are miscellaneous itemized deductions, meaning that you only get them if 1) your itemized deductions are higher than your standardized deduction and 2) your miscellaneous itemized deductions are greater than 2% of your adjusted gross income. I won't go into detail here, but let's just point out that this means you usually can't just do dollar-for-dollar decrease.

What's the too long; didn't read summary?
If your youtubing is a hobby (not designed for profit, not really done with a significant time investment, you're not really hoping to live of the revenue), then you probably should only itemize expenses. HOWEVER, if your youtubing is a business (designed for profit [even if you didn't], done with significant time investment, etc.,), then you report on schedule C, which is separate from itemized vs standard deductions.

 

[Kate's Adventures]

I had H & R block do mine last year, they had me file all my online earnings (YouTube & merch) as a business (which means I got taxed on those earnings once as a business, then they got added to my total income and my total was also taxed). Basically from the way they did it, my online earnings got taxed twice. I'm not sure if there's a better way to do it, but the tax professional seems to think that's how it should have been done.

Anyways, I asked them about deductions and they said anything I used to make my videos or merch could be deducted. So cameras, software, etc. were added on. I have to look at how they did it, but they had some stuff with weird numbers based on amortization, I'm not sure how that works exactly, I just let the experts handle it last year. This year I'm going to try to do my own and just follow what they filled out for me last year. Hopefully I don't owe too much this year, I can't really afford it right now!

I'm not sure you really care too much about the amortization part of this, but I have an accounting exam in a week and I'm on here instead of revising so I'm going to share my (admittedly patchy) knowledge anyway!
Your camera, software etc is expected to be of use over multiple financial periods but as time goes on, it is expected to lose value as new technology comes into place and in general it gets old and maybe doesn't work the same as it used to. There's different methods of calculating the exact figure that is deducted but the basic principle is that the cost of the items can be spread over the expected number of financial periods it will be used as opposed to declaring them as a lump sum in the financial year that they were purchased.
The same principle wouldn't apply to paper and pens etc because they're not expected to stick around for long, they're of relatively low value and figuring out what numbers would apply even if you were keeping a 3 year stash would be considered by most a waste of time.

 

[subversiveasset]

I had H & R block do mine last year, they had me file all my online earnings (YouTube & merch) as a business (which means I got taxed on those earnings once as a business, then they got added to my total income and my total was also taxed). Basically from the way they did it, my online earnings got taxed twice. I'm not sure if there's a better way to do it, but the tax professional seems to think that's how it should have been done.

Anyways, I asked them about deductions and they said anything I used to make my videos or merch could be deducted. So cameras, software, etc. were added on. I have to look at how they did it, but they had some stuff with weird numbers based on amortization, I'm not sure how that works exactly, I just let the experts handle it last year. This year I'm going to try to do my own and just follow what they filled out for me last year. Hopefully I don't owe too much this year, I can't really afford it right now!

This comment bugs me. I don't know the details here, but double income taxation implies that you're incorporated. You likely are *not* incorporated (especially if you haven't done any paperwork to get to that point). If you are not incorporated, then any business form you could have is called a "disregarded entity" or a "flowthrough". Either of these terms implies the tax treatment -- a sole proprietorship is *disregarded* from the owner, and a flowthrough (for a partnership) doesn't get taxed on its own, but the income flows through to the owner.

I mean, it's possible that you don't mean double income taxation (as I mentioned, sole proprietors are on the hook for self-employment taxes and then income taxes, but these are two different things...)

 

[Uncivilized Elk]

I am a tax accountant, but I am not your tax accountant, and I don't specialize in individual taxation, so I cannot and am not providing specific advice in this comment..

Thanks so much, this is super helpful!
So just to double check, you can take expenses off your gross income from your business (YT) while also claiming a standard deduction? Or can you only do that while itemizing? I'd really love a concrete answer on that, because I'm still confused.

Also, I realize you're not my account and you may not have the knowledge, but if you could give me your thoughts on this issue it would be super helpful. I live in Hawaii where the state has a general excise tax on business conducted in Hawaii ("for the privilege of doing business in Hawaii"). However, you're supposed to be exempt from this if your work is contracted out of the state - so does using YT AdSense actually qualify as formerly contracting to an entity who's residence is in California (Google Inc. lists its address as one in CA when you check). So would income earned from AdSense actually be exempt from a state GE tax since no service or sale of goods is being conducted within Hawaii?
And if you have no idea, that's fine - practically nobody I've spoken to seems to have any idea about this issue which is rather frustrating.

 

[subversiveasset]

Thanks so much, this is super helpful!
So just to double check, you can take expenses off your gross income from your business (YT) while also claiming a standard deduction? Or can you only do that while itemizing? I'd really love a concrete answer on that, because I'm still confused.

Also, I realize you're not my account and you may not have the knowledge, but if you could give me your thoughts on this issue it would be super helpful. I live in Hawaii where the state has a general excise tax on business conducted in Hawaii ("for the privilege of doing business in Hawaii"). However, you're supposed to be exempt from this if your work is contracted out of the state - so does using YT AdSense actually qualify as formerly contracting to an entity who's residence is in California (Google Inc. lists its address as one in CA when you check). So would income earned from AdSense actually be exempt from a state GE tax since no service or sale of goods is being conducted within Hawaii?
And if you have no idea, that's fine - practically nobody I've spoken to seems to have any idea about this issue which is rather frustrating.

yep, the analysis ultimately comes down to: is this a business or a hobby? If it's a business, then schedule C's calculation is separate from what you're doing on the main page of the return. You net businesses expenses against business income regardless of whether you take the standard deduction or itemize.

However, if it's a hobby, then hobby expenses are itemized as miscellaneous expenses (which is not favorable).

As far as state information, things get reaaaaally hairy. I'm definitely not a state tax expert (much less Hawaii...), but from what I'm reading, it looks like the Hawaii General Excise Tax is REAAAALLY broad. (Normally, I'd expect there to be limitations on those who aren't earning a lot, etc., but these don't seem to be there.)

That being said, when considering clauses regarding selling outside of the state, it's more complicated than just looking at a company's headquarters. (As Amazon found out.) Technically, you're not doing business with Google -- you're doing business with *every viewer you have*. The "use" of your service is not Google; it's your audience watching your videos. I mean, though the same sort of thing would apply in terms of allocating to non-Hawaii viewers (i mean, that really would be ridiculous though. Does youtube even keep track of stuff like this by state?)

I mean, it's actually really quite astounding. Most sales taxes have a lot of exemptions, whereas this seems to hit *almost everything*.

Wow. It's also pretty nasty in that it's a gross receipts tax. So, you would pay it *before* deducting any expenses.

 

[Uncivilized Elk]

I mean, it's actually really quite astounding. Most sales taxes have a lot of exemptions, whereas this seems to hit *almost everything*.

Wow. It's also pretty nasty in that it's a gross receipts tax. So, you would pay it *before* deducting any expenses.

Tell me about it. Friggin' huge headache - one of the many reasons why getting by in HI is so difficult. It was created ages ago for a completely different business climate than what HI has now, but they held on to it because it generates a huge amount of revenue for the state.
The GE tax being a gross income tax is also a super nasty component of it. A business can have a negative net income for whatever reason, and yet they still have to pay taxes on money they never even earned. You can operate at a loss, and yet still owe GE tax. And it's not even tiered whatsoever on how much businesses are actually earning.

Now about who you're technically doing business with, is it actually the viewers or is it the advertisers? (Although really, I guess it may not matter in the end.)
And if you're in the US, YT Analytics can show you the 10 states that watch your stuff the most, but I don't know if you can see details for all states (I'm sure the data is there, but whether you can contact google and actually get them to send you that data is a completely different story).

 

[subversiveasset]

Tell me about it. Friggin' huge headache - one of the many reasons why getting by in HI is so difficult. It was created ages ago for a completely different business climate than what HI has now, but they held on to it because it generates a huge amount of revenue for the state.
The GE tax being a gross income tax is also a super nasty component of it. A business can have a negative net income for whatever reason, and yet they still have to pay taxes on money they never even earned. You can operate at a loss, and yet still owe GE tax. And it's not even tiered whatsoever on how much businesses are actually earning.

Now about who you're technically doing business with, is it actually the viewers or is it the advertisers? (Although really, I guess it may not matter in the end.)
And if you're in the US, YT Analytics can show you the 10 states that watch your stuff the most, but I don't know if you can see details for all states (I'm sure the data is there, but whether you can contact google and actually get them to send you that data is a completely different story).

I think it would be really interesting to research sales nexus on media companies, but I haven't had the time. That being said, advertisers also makes a reasonable amount of sense...

 

[PinProject]

I am a tax accountant, but I am not your tax accountant, and I don't specialize in individual taxation, so I cannot and am not providing specific advice in this comment...just some general thoughts (that yes, you should consult with your tax advisor):

1) You don't *necessarily* have to have any separate registrations or business to report income on Schedule C (Profit or Loss from Business) income, especially as a sole proprietorship. You may wish to do so for other benefits (e.g., state regulatory requirements, branding (if you don't want to do business under your own name, etc.,) but from a federal tax perspective, that's not necessarily the driving factor.

2) If Google/YouTube is sending you a 1099-MISC (which they would if you earned over $600 in the year in revenue), then that means that they do not consider you an employee (this is obvious), and that you are considered an independent contractor (this may not be as obvious) who operates his own business (this doesn't seem to be obvious based on the comments that have been posted so far.) So the presumption is that you are operating as a business if you have a 1099-MISC.

3) Businesses can take ordinary and necessary expenses against income when getting to net profit or loss from the business. Net profit or loss from the business then goes to form 1040, where it gets added with other sources of income (e.g., W-2 wages, and so forth) and schedule SE...

4) That Schedule SE? That's for self-employment. Please note that you're on the hook for social security and medicare taxes on self-employment. (These are things your employer would automatically withhold from your paycheck, but, per (2) above, you're not an employee of Youtube, so they don't withhold anything!)

5) Please note that this analysis is for the business. You can't just take your personal expenses against youtube revenue, because for your personal taxes, you are subject, as mentioned, to standard deduction or itemized deduction. What you *can* do is recognize the expenses that are for your "business" (that is, your channel) and deduct those against income.

6) TECHNICALLY, if you have a business, you can generate a net loss, and as an individually, you can take a deduction of that NOL against your other sources of income...this is where a lot of the "hairiness" of being a sole proprietor could come into play with the IRS though, because the IRS has reason to be suspicious. Imagine the following situation that the IRS would NOT want:

You are a video gamer. You love playing games. It is your hobby. You hear from a friend that you can make money off youtube from your let's plays, and you hear that you can deduct business expenses relating to your channel. So you say, "OK, I'm going to make a Let's Play channel, and then treat my video games as expenses. I'm going to make sure that I not only wipe out any revenue from youtube, but that I can take a loss against ordinary income. I am a genius."

This gamer should expect to be audited, because...​

7) From a tax perspective, a trade or business is conducted for profit. That doesn't mean every business has to be profitable every year (a lot of them aren't), but so-called "businesses" that make losses every year look very suspicious to the IRS...the IRS would like to reclassify these as "hobby losses" (which are NON-DEDUCTIBLE losses incurred as a result of doing an activity for pleasure rather than for business). There are a lot of factors that go into whether something is a hobby or a business, and you can look up "hobby losses" if you're interested. The short answer is that for most part-time Youtubers, things don't look so great.

8) If your youtube is treated as a hobby for tax purposes, things look much worse, tax wise. You can deduct only up to your revenue as expense (so no net operating loss), BUT it's not so simple. Hobby expenses are miscellaneous itemized deductions, meaning that you only get them if 1) your itemized deductions are higher than your standardized deduction and 2) your miscellaneous itemized deductions are greater than 2% of your adjusted gross income. I won't go into detail here, but let's just point out that this means you usually can't just do dollar-for-dollar decrease.

What's the too long; didn't read summary?
If your youtubing is a hobby (not designed for profit, not really done with a significant time investment, you're not really hoping to live of the revenue), then you probably should only itemize expenses. HOWEVER, if your youtubing is a business (designed for profit [even if you didn't], done with significant time investment, etc.,), then you report on schedule C, which is separate from itemized vs standard deductions.

Thanks so much for your detailed response it really put things in perspective. Accounting/tax can be so complicated, you definitely convinced me to hire a professional to do my taxes this year and learn from them so I can go back to doing it myself. I live in Canada so maybe the laws are slightly different but I would think it's roughly the same idea. Basically I'm not going to file as a "hobby" but I'm thinking now I won't claim all my expenses because my expenses were atleast triple to what I made this year at youtube lol But I guess it makes sense since it was my first full year of starting my channel and I needed to buy a few things to start-up.

 

[subversiveasset]

Thanks so much for your detailed response it really put things in perspective. Accounting/tax can be so complicated, you definitely convinced me to hire a professional to do my taxes this year and learn from them so I can go back to doing it myself. I live in Canada so maybe the laws are slightly different but I would think it's roughly the same idea. Basically I'm not going to file as a "hobby" but I'm thinking now I won't claim all my expenses because my expenses were atleast triple to what I made this year at youtube lol But I guess it makes sense since it was my first full year of starting my channel and I needed to buy a few things to start-up.

I hope that you can learn a lot from a Canadian tax professional -- from my limited experience, a lot of countries have similar concepts here, so I would imagine that things are similar, but of course, laws will always be different by location -- not just country, but state/province (as the comments from Hawaii in this discussion have highlighted).

In the US, there are rules regarding startup expenses, so you may want to ask any Canadian professional about that. And as has been mentioned in other comments, certain expenses are capital in nature, so for example, recording equipment probably couldn't be fully deducted in the first year (at least, also ask about whether Canada has bonus depreciation. the US is pretty favorable to buying certain equipment.)

I'd say it's better to be safer and more conservative, though.

 

[Te-Erika]

I am a tax accountant, but I am not your tax accountant, and I don't specialize in individual taxation, so I cannot and am not providing specific advice in this comment...just some general thoughts (that yes, you should consult with your tax advisor):

1) You don't *necessarily* have to have any separate registrations or business to report income on Schedule C (Profit or Loss from Business) income, especially as a sole proprietorship. You may wish to do so for other benefits (e.g., state regulatory requirements, branding (if you don't want to do business under your own name, etc.,) but from a federal tax perspective, that's not necessarily the driving factor.

2) If Google/YouTube is sending you a 1099-MISC (which they would if you earned over $600 in the year in revenue), then that means that they do not consider you an employee (this is obvious), and that you are considered an independent contractor (this may not be as obvious) who operates his own business (this doesn't seem to be obvious based on the comments that have been posted so far.) So the presumption is that you are operating as a business if you have a 1099-MISC.

3) Businesses can take ordinary and necessary expenses against income when getting to net profit or loss from the business. Net profit or loss from the business then goes to form 1040, where it gets added with other sources of income (e.g., W-2 wages, and so forth) and schedule SE...

4) That Schedule SE? That's for self-employment. Please note that you're on the hook for social security and medicare taxes on self-employment. (These are things your employer would automatically withhold from your paycheck, but, per (2) above, you're not an employee of Youtube, so they don't withhold anything!)

5) Please note that this analysis is for the business. You can't just take your personal expenses against youtube revenue, because for your personal taxes, you are subject, as mentioned, to standard deduction or itemized deduction. What you *can* do is recognize the expenses that are for your "business" (that is, your channel) and deduct those against income.

6) TECHNICALLY, if you have a business, you can generate a net loss, and as an individually, you can take a deduction of that NOL against your other sources of income...this is where a lot of the "hairiness" of being a sole proprietor could come into play with the IRS though, because the IRS has reason to be suspicious. Imagine the following situation that the IRS would NOT want:

You are a video gamer. You love playing games. It is your hobby. You hear from a friend that you can make money off youtube from your let's plays, and you hear that you can deduct business expenses relating to your channel. So you say, "OK, I'm going to make a Let's Play channel, and then treat my video games as expenses. I'm going to make sure that I not only wipe out any revenue from youtube, but that I can take a loss against ordinary income. I am a genius."

This gamer should expect to be audited, because...​

7) From a tax perspective, a trade or business is conducted for profit. That doesn't mean every business has to be profitable every year (a lot of them aren't), but so-called "businesses" that make losses every year look very suspicious to the IRS...the IRS would like to reclassify these as "hobby losses" (which are NON-DEDUCTIBLE losses incurred as a result of doing an activity for pleasure rather than for business). There are a lot of factors that go into whether something is a hobby or a business, and you can look up "hobby losses" if you're interested. The short answer is that for most part-time Youtubers, things don't look so great.

8) If your youtube is treated as a hobby for tax purposes, things look much worse, tax wise. You can deduct only up to your revenue as expense (so no net operating loss), BUT it's not so simple. Hobby expenses are miscellaneous itemized deductions, meaning that you only get them if 1) your itemized deductions are higher than your standardized deduction and 2) your miscellaneous itemized deductions are greater than 2% of your adjusted gross income. I won't go into detail here, but let's just point out that this means you usually can't just do dollar-for-dollar decrease.

What's the too long; didn't read summary?
If your youtubing is a hobby (not designed for profit, not really done with a significant time investment, you're not really hoping to live of the revenue), then you probably should only itemize expenses. HOWEVER, if your youtubing is a business (designed for profit [even if you didn't], done with significant time investment, etc.,), then you report on schedule C, which is separate from itemized vs standard deductions.

Hi. I have no clue where this report is. I am ready to file my taxes. How do I get a copy of my income report for 2016? Thank you!