More than a decade ago, social media was only good for connecting with friends. But in the last few years, the social media space has evolved into a money-making hub with millions of people worldwide, such as Instagram influencers, creating a career out of it.
With the IRS at the heels of every money-making venture, you will expect to pay taxes if you make money out of social media. But before you start remitting your taxes to the IRS as a social media influencer, here's everything you need to know about Instagram tax.
Hobby Vs. Career Taxes
The IRS's approach to Instagram tax is based on a person's approach to Instagram and is divided into two. These two classes of taxable Instagram users are influencers and hobbyists.
The IRS provides criteria for determining whether your Instagram account leans more toward being an influencer or a hobbyist. Some of the aspects of your Instagram account you may need to look at to know if your account is more of a business than a hobby include:
You are constantly working to make it more profitable
You are tracking your income and expenses as you would for a business
You depend on your account financially
You are investing in tools to help you run your account more professionally
If running your account results in losses
The IRS will take it a step further to look at factors like whether you earned or java earned money on other platforms before, the account's yearly income, and the prospects of your account based on its projection.
Based on these factors, you can tell where your Instagram account stands which then advises the types of taxes you should pay. If you still can not tell where your account stands, this guide on tax compliance can help you get a better picture.
Hobbyist Instagram Taxes
You need not be a career influencer to make money on Instagram. You could make some money even without putting much effort into improving your account for better performance.
If this feels like what your account is, you are a hobbyist. But you will still need to pay taxes for any income generated through your account.
Unlike career influencers, hobbyist Instagrammers do not enjoy expense deductions from their taxable Instagram income, meaning that your income is taxed in its entirety.
Also, you will have to file it as taxable earnings on form 1040. If you work with any brand earning more than $600, they will also need to send you a form 1099.
Taxes for Influencers
If your account leans more on the side of a business, you are an influencer. As an influencer, you are required to pay both income tax and self-employment tax. The IRS considers the Instagram account the employer through which the influencer gets their income.
Being business by classification, you will also have to pay social security medicare and taxes. Unlike hobbyist Instagram users, influencers can access tax breaks through expense deductions.
When calculating your taxes, you will have to consider your gross income and subtract your expenses to reach the value of your taxable income.
Get Help
If you need tips on all matters Instagram taxes or any other tax-related issues, you can now get them on the IRS' Instagram account. The IRS came on Instagram in late 2018 to get closer to taxpayers and humanize the agency.
The IRS Instagram account shares taxpayer-friendly information that can ensure you stay compliant and avoid scamming from online fraudsters.
But matters of tax can get complicated, and nobody wants to make a mistake when filing their taxes. So you may need to consult a tax expert to ensure that you get your IRS issues right.
