Paying tax has always been complicated. When it’s the time of the year to pay your taxes, it’s not as easy as saying I earn X, so I pay Y. Instead, you have complex processes that determine how much tax you have to pay. There are ways to reduce your tax bill and, in some instances, avoid paying tax through YouTube.
Do I Have To Pay YouTube Tax?
Firstly, only YouTube accounts with monetization are required to pay taxes. Therefore, if you are not a YouTube partner, you do not need to be worried about paying taxes.
Once you start earning money from YouTube, you’ll be required to pay taxes regardless of where you stay. Therefore, even if you aren’t residing in America, you may still need to pay money to the US government.
How To Navigate YouTube Taxes: Step by Step Guide
If you’re a US resident and have made money through YouTube over the past year, this step by step guide will help you better navigate YouTube taxes.
Step 1: Submit Your Tax Information To YouTube
To ensure YouTube doesn’t withhold any of your earnings for taxes, you need to submit your tax information. You can do this by:
Signing in to your Adsense Account → Click payments → Click manage settings → Scroll to “Payment Profile” and click on edit next to “United States Tax Info” → Click manage tax information.
After you’ve completed this process, you will be prompted to fill in your tax information, including your address. Be sure both your legal address and your permanent residence address are the same to ensure you receive your tax forms from YouTube.
Step 2: Download Form 1099 or File Online
Since content creators are essentially contract workers, the form you need to submit is the 1099-NEC. The income you get from ads will be classified as Royalties so will be submitted within that category.
You can check your dashboard for your annual calculation.
Note: You may receive your 1099 Form and other relevant information to the address you specified in your Permanent Residence Address, so be sure the information is correct before tax season begins.
Step 3: Include Your Deductibles (The Best Way To Avoid Paying As Much Tax)
Savvy content creators use deductibles to avoid paying as much tax on their earnings. However, to apply deductibles, you need to keep track (receipts) of your spending and how that relates to your YouTube content. Everything you spend money on – for your YouTube channel or your content – is a potential deductible. This includes purchasing equipment, buying gas, using a room in your home as a filming studio, etc. All these costs are deducted from your gross earnings, and then you only have to pay tax on what remains.
For example: if you earn $100 from YouTube but spend $100 on a microphone, you wouldn’t need to pay any tax. However, if you earn $100 from YouTube and spend $50 on a microphone, the IRS will tax the $50 balance. But be sure to speak to a professional to get the most accurate information on what works in your circumstance.
Step 4: Pay What You Owe
We discuss taxes in Module 4 of The Ultimate Instagram Blueprint. However, one way to ensure that you are not met with a hefty payment once a year is to save a portion of your YouTube earnings to be taxed. Since YouTube isn’t withholding taxes, you should be tracking your YouTube income throughout the year to avoid an astronomical bill during tax season. Therefore, a good guideline is to hold a balance of 30% of your gross earnings. You can then use this amount to pay the IRS.
Also, to ensure the IRS accepts your receipts for deductibles – and to better track your deductible expenses – consider using an app like Shoeboxed. Although the app costs $19 a month, the cost is well worth it when you realize how much savings you can make on your taxes.
Can You Really Avoid Paying YouTube Tax?
There’s a famous Benjamin Franklin quote that goes, “in this world, nothing can be said to be certain, except death and taxes.” The man is on the $100 bill, so he knows a thing or two about taxes.
Therefore, as a YouTube creator, the best thing you can do is avoid paying 24% on your gross earnings. Another way to pay less in taxes is to ensure YouTube doesn’t withhold your taxes by submitting your information. This way, YouTube doesn’t need to pay the IRS on your behalf.
What’s the difference between you paying and YouTube withholding your taxes? If YouTube withholds your taxes, they are going to withhold a fixed percentage that won’t change based on deductibles, etc. If you pay the IRS yourself, you will be able to include deductibles, etc.
Now that you understand your taxes, it’s time to file them. You have until April 15 to file them, unless that day falls on a weekend or holiday. However, due to COVID-19, the 2021 due date has been extended to 17 May 2021.
If you don’t think you can file your returns by this day, File an extension using Form 4686, which the IRS needs to receive before the due date.
Disclaimer: The materials and information on this post are intended for informational purposes only. The information on this post may not reflect up-to-date tax developments, and it is up to readers to seek out information from a licensed tax practitioner. Any opinions expressed on or through this post are the opinions of the individual author and do not reflect the opinions of ForCreators.