Social Media Influencer Tax Deductions | Influencers Taxes
What are some of the tax deductions that an influencer can take as an independent contractor? As an influencer, it’s very likely that your employment relationship with all the sponsors is going to be that of a 1099 independent contractor. And what that means is, at the end of the year, you’ll be provided with 1099 from the sponsors, and then no taxes will be withheld from your compensation throughout the year. So, you are going to be responsible for the self-employment tax at the end of the year. Now, a smart influencer is first going to talk with an accountant, and then that accountant is going to have you set up an LLC in whatever state that you’re living in.
Influencer Tax Deductible Self Employed Expenses
You’re going to create a bank account with that LLC, and then you’ll have a tax ID number. And by doing that, you can then deduct many of the expenses and things that go into being an influencer. For instance, you could do travel expenses, home office deduction, advertising and marketing, legal fees, travel, whatever industry you’re in, fitness, fishing, or whatever, things like that. A product that you buy to be an influencer in that arena, you can likely deduct that as well. There are dozens of things that you can deduct as an influencer. Now, I’m not a tax attorney or an accountant, I’m just a contract attorney. As I said, I would suggest absolutely reaching out to an accountant that you feel comfortable with, and they can walk you through exactly the things that you can and can’t deduct and then things that you can track throughout the year as well.
One of the worst things to see is when you have someone who is new to the industry, they haven’t been an influencer before, they haven’t made money as an independent contractor before, and they just simply don’t realize that no taxes are being taken out. And then they’re going to be responsible for potentially a very large amount of money paid to the government, either quarterly or at the end of the year. And it’s a shock to them and some of them spend more than they save. And then they have a problem at the end of the year. So, just be aware that almost every relationship that an influencer is going to have with a sponsor is going to be that as a 1099 independent contractor. There are certainly some great tax advantages that you can take advantage of as an independent contractor. I mean, the main downside to not having an employment relationship is as an employee, you would get benefits that most employees would get like health, vision, dental, disability, life, retirement, and paid time off. Other topics of interest include:
They’ll pay for your licensure and continuing education. They will provide a lot of the things that are needed to do your job. Now, as I said before, as an independent contractor, you can take all of those things and then deduct them at the end of the year. But many people just simply hate having to be the ones to initiate getting those things. So, most of the people I work with hate having to go get health insurance and disability and life, and that stuff they don’t want to worry about, but something you must do when you’re self-employed. So, anyway, that’s a little bit about tax deductions for social media influencers. As I said before, if you have any questions or concerns about your management contract, feel free to call my law firm.
1099
Does an influencer receive a 1099? So, what is a 1099? If you are classified as an independent contractor, which you likely are if you’re a social media influencer, you’ll receive a 1099, which is a form at the end of the year. And then the compensation received by the influencer from any of the sponsoring companies will have no taxes withheld. At the end of the year or quarterly, which would be preferable, the influencer would need to pay to the government whatever self-employment tax would go with whatever you had been compensated. In a normal kind of professional environment, you would have either employees or independent contractors. An employee would receive a W2 and then their compensation would have taxes taken out of it during the regularly scheduled payroll.
As an influencer, you’re not acting as an employee. You’re acting as an independent contractor. You’re just doing a specific amount of work for a sponsoring company for a specific amount of time. You don’t see most influencer agreements go beyond a year. Most of the time, at most they’ll be 12 months, and then they’ll be renewable by the agreement of both parties. Sometimes it’ll just be an event, so you would just have to show up for a day or for a few hours. And obviously, in that scenario, it’s a very short-term relationship, and being an independent contractor would be the only way to properly classify the influencer. What I would suggest is if you’re an influencer and you haven’t done this before, and you’re uncertain how to handle the tax implications of this, you need to reach out to an accountant preferably close to you.
Tax Advantages of an Independent Contractor
There are certainly some significant tax advantages that you can take advantage of as an independent contractor. The main downside to not having an employment relationship is being an employee. You would get benefits that most employees would get, like health, vision, dental, disability, life, retirement, and paid time off. They’ll pay for your licensure and continuing education. They will provide a lot of the things needed to do your job.
As I said before, as an independent contractor, you can take all those things and then deduct them at the end of the year. But many people just simply hate having to be the ones to initiate getting those things. So, most people I work with hate getting health insurance and disability and life. And that stuff they don’t want to worry about, however, is something you must do when you’re self-employed. So, that’s a little about the deduction of income tax for social media influencers. If you have any questions or concerns about your management contract, feel free to call my law firm.
Taxes That Are Deductible by Social Media Influencers
I guess it doesn’t really matter nowadays, but someone who has some familiarity with social media influencers and kind of taking tax deductions and that type of thing. What they’ll likely do is they’ll tell you that you need to create an LLC. You need to get a tax ID number from the IRS, which is called an EIN, and then you’ll also need to create a bank account under that LLC. And then you’ll put all compensation and expenses, then run through that bank account so you can easily track the expenses. And then at the end of the year, you can deduct a lot of the things that you need to be an effective influencer. It could be travel costs, lodging, meals, or any type of cost associated with meetings, depending on what type of influence you are.
It could be clothing or different products. There are just a ton of things that you can deduct. And so, ultimately you may come out ahead if you were just kind of classified as an average employee. There are certain tax benefits to being an influencer. It’s a different type of job, as you probably know. And I think the professional environment is kind of evolving as far as how they see influencers and then kind of what the potential tax deductions for them can be. So, does an influencer receive a 1099? Very likely yes. Absolutely, they would. If you have any questions about your independent contractor agreement or influencer agreement, we certainly can help with that.
How are Social Media Influencers Taxed? | Influencer Taxes
How are social media influencers taxed? First, suppose you are an influencer, likely. In that case, your employment relationship between you and whatever sponsoring company you’re working with or endorsing is via an independent contractor relationship. As an independent contractor, you’ll receive a 1099 at the end of the year, and no taxes are withheld from any compensation you would receive from the company you’re working with.
As an employee, you would receive a W2, and taxes would be withheld from whatever the regularly scheduled payroll period is. And then, at the end of the year, when you file your taxes, it’s very likely that you won’t have to pay much to whatever state or federal government that you’re working in. As an independent contractor, as I said, no income taxes are withheld throughout the year. So, at the end of the year or quarterly, depending upon how you want to do it, you’re going to have to pay self-employment tax, once again, to the state or federal government. I would suggest a few things: one.
You need to meet with an accountant before doing any work as an independent contractor influencer. It would be best if you created an LLC, got an EIN from the IRS, got a bank account for that business, and ran all compensation and expenses through that. That way, you can take business expense deductions at the end of the year. If you’re an influencer, you must consider yourself a business. And all the things that go into being an influencer, depending upon what type of industry you’re in. And then you can use it for the most part as deduction of tax at the end of the year like travel or product, depending upon what you are.
Can You Get Tax Deductions?
If you’re in fitness, it could be weightlifting equipment. Collaborations with other sponsors, getting there, and expenses paid can be used as deductions at the end of the year. However, you need to hook up with an excellent accountant to figure out how to structure the LLC you’re creating and then know what types of deductions you can take at the end of the year. What is the distinction between being an employee and an independent contractor? The IRS lists a 20-factor test describing what makes someone an independent contractor versus an employee.
Just a few of them have control over the influencer, meaning a full-time working relationship. Do they tell you where to go? How long to work, exactly what to do, and do they offer benefits? So, health, vision, dental, disability, life, insurance, and retirement are all. It’s doubtful that you will have an employment relationship between you and the sponsor if you’re working as an influencer. Maybe it’s a very strong relationship, and you’re working for them daily. Once again, it depends upon the state that you’re in. But most employment relationships between the sponsor and the influencer will be through an independent contractor relationship.
How Can an Influencer Terminate a Management Contract?
How can an influencer terminate a management contract? Most influencers will have either an agent, a manager, or maybe even a marketing agency working for them. And then you should have a contract with them. Sometimes, it might just not work out. The influencer is interested in terminating the agreement and then determining the implications if they end it. In any contract, a section states how you can terminate the agreement, customarily called termination. And there are generally four common ways you can end a contract. One, your influencer management contract is going to have a term. And the term simply means how long it lasts. An average amount for an influencer management contract is somewhere between one and five years.
And then, it will state after that initial term if it automatically renews or not. Let’s say it’s a one-year term. Many contracts will note that if neither party terminates the agreement. And it’ll automatically renew for successive one-year terms that go on forever until ended. Some contracts don’t have that language, and it’s just a fixed term, meaning it’s one year, and that’s it. And in that scenario, if your contract ended after a year, neither party renewed it, it’s done. The contract is terminated. The second way would be through mutual agreement. If either party just said, you know what, this isn’t working out, regardless of what the contract says, I’m just interested in washing our hands of the situation and moving on.
Employed Income and Business Considerations
Is an influencer considered an employee? In short, no. An influencer is going to have two types of employment relationships. You’re going to have a contract with your agency or manager or marketing firm. That’s one contract, and then you’re also going to have a contract with the sponsors as well. And so, I mean, sponsoring companies is a normal way of saying it. Now, your relationship with these sponsoring companies is that of an independent contractor. A normal employee would receive a W2 at the end of the year, and then they would have taxes taken out of whatever compensation they would receive. They would get benefits such as health, vision, dental, disability, life, and retirement, all of the benefits of being an employee.
However, an influencer is considered an independent contractor and would receive a 1099 at the end of the year and no taxes are taken out or withheld during the entire year. The influencer is going to be responsible for paying those self-employment taxes at the end of the year. Now, I find this is the dad in me that many influencers don’t understand the tax implications of being a 1099 independent contractor. And then they get to the end of the year, and they have an enormous tax bill and they think, oh, well, I’ve spent a lot of that money and I’m not sure what to do. So, you just need to make certain, and this is what I would suggest, is reaching out to an accountant wherever you live establishing a relationship with them and trying to find the best ways to maximize your tax deductions.
Now, most of the time, what would happen is an influencer would create an LLC. Basically, they’re their own business. They’d get a tax ID number, an EIN from the federal government, they’d create a bank account, and then they’d run all their compensation and expenses through this account. And that way, they’d be able to deduct several things that go into being an influencer like travel, and any expenses that go with it depending upon what type of influence you are, equipment, clothes, all that kind of stuff can potentially be deducted but it needs to be set up properly. Now, is there any time when you would be an employee? The answer to that is most likely no. As I said before, if you have an employment relationship with somebody, you are an actual employee, you’re likely working a nine to five full-time job.
Whereas most of the time, as an influencer, you’re just kind of coming in, endorsing a product coming out, or maybe you have a year-long relationship where you’re required to do. If you’re on YouTube, maybe you’re required to do a 90-second spot once a month for a company, that type of thing, but it’s not an ongoing employment relationship. It’s just a straight-up independent contractor relationship between the sponsoring company and the influencer. Well, hopefully, that was helpful and that’s kind of whether influencers are employees, and the answer is no, they’re very likely not.
Breaking a Management Contract in the Digital World
Can you break an influencer management contract? One thing that I find kind of gets confused is when someone considers breaking a contract, meaning, breaching it, or just simply terminating a contract, and let’s go over the difference between the two. If you’ve signed a management contract with an agency or a manager, there will be clause in that contract that states how the influencer can terminate the agreement, meaning, end it. And for the most part, there’s four ways that you can terminate a contract. If it’s for a fixed period and it doesn’t renew, let’s just say it’s a year, either party wants to renew, the contract ends, it’s terminated and that’s it.
You could terminate it by mutual agreement. At any point, even if there are clauses in the contract that state a certain amount of notice that must be given, you can just say, you know what, it’s not working out. Let’s just move on. If both parties agree, then you can move on. The third way is for cause termination, meaning, one party has breached the contract. Let’s just say you’re an influencer, your management company continues to pay you slowly, or they’re not paying you the correct amount, you’d send them written notice they’re in breach of a contract. Then normally, they’d have time to fix that breach, c
Do Influencers Get a 1099? | Influencer Independent Contractor
Does an influencer receive a 1099? So, what is a 1099? If you’re an independent contractor, which you likely are if you’re a social media influencer, you’ll receive a 1099, which is a form at the end of the year. And then, the compensation received by the influencer from any of the sponsoring companies will have no taxes withheld. At the end of the year or quarterly, which would be preferable, the influencer would need to pay to the government whatever self-employment tax would go with whatever you had been compensated. A typical professional environment would have either employees or independent contractors. Employees would receive a W2, and their compensation would have tax taken out of it during the regularly scheduled payroll.
Can Social Media Influencers Receive a 1099?
As an influencer using social media, you’re not acting as an employee. You’re acting as an independent contractor. You’re just doing a specific amount of work for a sponsoring company for a particular amount of time. You don’t see most influencer agreements go beyond a year. Most of the time, they’ll be 12 months, and then they’ll be renewable by the agreement of both parties. Sometimes it’ll just be an event, so you must show up for a day or a few hours. And in that scenario, it’s a very short-term relationship, and being an independent contractor would be the only way to classify the influencer correctly. I would suggest if you’re an influencer and haven’t done this before. Suppose you’re uncertain how to handle the tax implications of this. In that case, you need to reach out to an accountant, preferably close to you.
What Should You Do to be an Effective Influencer?
I guess it doesn’t matter nowadays, but someone familiar with social media influencers is taking income tax deductions. What they’ll likely do is they’ll tell you that you need to create an LLC. You need to get a tax ID number from the IRS, called an EIN, and then you’ll also need to create a bank account under that LLC. And then, you’ll put all compensation and expenses through that bank account, so you can easily track the expenses. And then, at the end of the year, you can deduct many of the things you need to be an effective influencer. It could be travel costs, lodging, meals, or any cost associated with meetings, depending on what type of influence you are.
It could be clothing or different products. There are just a ton of things that you can deduct. And so, you may come out ahead if you’re an average employee. There are certain income tax benefits to being an influencer. It’s a different type of job, as you probably know. And I think the professional environment is evolving regarding how they see influencers and what the potential tax deductions for them can be. So, does an influencer in social media receive a 1099? Very likely, yes. They would. If you have any questions about your independent contractor agreement or influencer agreement, we certainly can help with that.
job
Is a Social Media Influencer an Employee? | Influencers as Employees
Is an influencer considered an employee? In short, no. An influencer is going to have two types of employment relationships. You will have a contract with your agency, manager, or marketing firm. That’s one contract; you will also have an agreement with the sponsors. And so, I mean, sponsoring companies is a usual way of saying it. Your relationship with these sponsoring companies is that of an independent contractor. A regular employee would receive a W2 at the end of the year. Then they would have income tax taken out of whatever compensation they would receive. They would get benefits such as health, vision, dental, disability, life, and retirement, all of the benefits of being an employee.
However, an influencer is considered an independent contractor. It would receive a 1099 at the end of the year, and no taxes would be taken out or withheld during the entire year. The influencer will be responsible for paying those self-employment tax at the end of the year. Now, I find this is the dad in me that many influencers don’t understand the income tax implications of being a 1099 independent contractor. And then they get to the end of the year, and they have an enormous tax bill, and they think, oh, well, I’ve spent a lot of that money, and I’m not sure what to do. So, you just need to make sure. I would suggest reaching out to an accountant wherever you live, establishing a relationship with them, and trying to find the best ways to maximize your income tax deductions.
What Happens If You are Working as an Independent Contractor
Now, most of the time, what would happen is an influencer would create an LLC. They’re their own business. They’d get a tax ID number and an EIN from the federal government, and they’d make a bank account. Then they’d run all their compensation and expenses through this account. And that way, they’d be able to deduct several things that go into being an influencer, like travel. Any costs that go with it, depending upon what type of influence you are, equipment, clothes, all that kind of stuff, can potentially be deducted. Still, it needs to be set up correctly.
Now, is there any time when you would be an employee? The answer to that is most likely no. As I said before, if you have an employment relationship with somebody, you are an actual employee. You’re probably working a nine-to-five full-time job. Whereas most of the time, as an influencer, you’re just kind of coming in, endorsing a product coming out, or maybe you have a year-long relationship where you’re required to do. If you’re on YouTube, perhaps you’re required to do a 90-second spot once a month for a company. Still, it’s not an ongoing employment relationship. It’s a straight-up independent contractor relationship between the sponsoring company and the influencer. Well, hopefully, that was helpful, and that’s kind of whether influencers are employees. The answer is no. They’re very likely not.
Breaking a Management Contract in the Digital World
Can you break an influencer management contract? One thing that I find kind of gets confused is when someone considers breaking a contract, breaching it, or simply terminating a contract. Let’s go over the difference between the two. Suppose you’ve signed a management contract with an agency or a manager. In that case, a clause in that contract states how the influencer can terminate the agreement, meaning, end it. And for the most part, there are four ways that you can terminate a contract. If it’s for a fixed period and it doesn’t renew, let’s just say it’s a year, either party wants to renew, the contract ends, it’s terminated, and that’s it.
You could terminate it by mutual agreement. At any point, even if there are clauses in the contract that state a certain amount of notice that must be given, you can just say, you know what, it’s not working out. Let’s just move on. If both parties agree, then you can move on. The third way is for cause termination, meaning one party has breached the contract. Let’s just say you’re an influencer, your management company continues to pay you slowly, or they’re not paying you the correct amount. You’d send them written notice they’re in breach of a contract. Then usually, they’d have time to fix that breach.
Are Social Media Influencers Independent Contractors? | Influencer Media
Are social media influencers independent contractors? Previous jobs that an influencer has had are very likely employee W2 opportunities. Let’s just say you’re working in retail. You are an employee, meaning the employer has complete control over you. They tell you where to work, when, how much you work, and your duties. And then, you’ll receive a W2 at the end of the year, with tax withheld in your paychecks throughout the year. In that scenario, you’re an employee. Now, as an influencer, your job is different. You aren’t working full-time for any of these companies you sponsor. I guess you’re doing a short-term burst of marketing, depending upon the relationship.
And for the most part, it’s up to you, maybe the exact content you post. I mean, there’ll be some bare bones. We want you to post this many times a month. We want you to do 90-second spots on your YouTube videos once every two months, whatever it is. But you’re not going into a nine-to-five job every day. And when the sponsor does not exert complete control over the influencer, that’s more of an independent contractor relationship. And so, at the end of the year, the independent contractor receives a 1099, and any compensation paid to the influencer has no taxes withheld. At the end of the year, the influencer is going to be the one that must pay the tax on all of the compensation that they’ve received.
Is There an Advantage to Being an Independent Contractor versus an Employee?
Is there an advantage to being an independent contractor versus an employee? Well, suppose you’re an intelligent independent contractor. In that case, you’re going to create an LLC, and then you’re going to get a tax ID number, an EIN through the IRS, and then you’re going to create a bank account for that LLC. And then you’re going to run all compensation and expenses through that account. As an influencer, you can take many income tax deductions as an independent contractor. Many things that go into being an influencer can be deducted. Like travel, maybe you’re in the fitness industry. You’re trying out new products, well, you can likely deduct the products that you bought as well, meals, gas, cars sometimes. You can deduct a ton of things when you are considering your own business as an independent contractor and self-employed.
I’m not an accountant or tax attorney, so I’m certainly not a complete expert on this, but I suggest you reach out to an accountant. They can assist you in setting up the LLC and then let you know exactly what you can and cannot deduct. And that way, you can maximize your compensation and tax deductions at the end of the year. If you’re not doing that, you’re leaving a lot of money on the table. Now, there may be scenarios where you’re working so much for one sponsor or doing so much work for them for a week, a month, a year, or whatever that you may be classified as an employee.
Talk with the Sponsor
A scenario like that would rarely exist. However, there may be times when there’s so much activity between an influencer and a sponsor that they might be considered an employee. Suppose you’re concerned that you’re being misclassified as an employer or independent contractor. In that case, I suggest you speak to the sponsor and let them know your concerns and talk through that. So, that’s a little bit about whether a social media influencer is an independent contractor. They very likely are, and you will receive 1099 at the end of the year.
Why An Influencer Management Contract Attorney is Always Necessary | The Need for Lawyers in Influencer Contracts
The dream of becoming a social media influencer is increasingly common, with a reported 86% of young Americans saying that they want to try their hand at being an influencer. A full 12% say that they already consider themselves an influencer, and 20% say they know someone who is an influencer. With figures like this, it is hardly any wonder that there are lawyers on standby who can help people looking to become social media influencers.
The Pressing Need for Legal Review of Influencer Contracts
There is a pressing and immediate need for the legal review of influencer contracts because of the proliferation of contracts offered to aspiring influencers like yourself. To illustrate this point, take a look at some of the following figures related to the growth of this specific industry over the last few years:
- The total industry value of influencer marketing is set to grow to $16.4 billion by 2022
- 75% of brands say that they indeed put aside at least some money towards brand influencers
- Brands are increasingly paying their influencers in cash. There is about a 50/50 split between influencers who are paid with products and those paid with cash
- The total value of all eCommerce sales influenced by social media is estimated to hit around $958 billion this year (2022)
Influencers see the money they can make in this line of work and are ready to get started. They know that there is a high ceiling as far as what they can potentially earn, and they want to make those dreams a reality. Influencers are looking for their unique niche to develop to build an audience and attract the kind of business sponsorships that will help them earn the kind of living they really want.
Influencers and Attorneys Need to Carefully Review the Contract
Influencer agreements should be reviewed very carefully by the performers and the attorneys they hire to review those contracts. There are a number of elements to be on the lookout for, including:
- Form of Payment – How will you be paid for the content that you produce? Many influencers can command cash payments at this time, but some are still paid in free products (or some combination of the two). You want to get to the point where you can receive cash for your hard work, and the best way to do so is to make sure it is in your contract. It may take some time before you can get this kind of treatment, but you should keep working at it until you can secure those cash payments.
- Length of Contract – It is ideal to have an influencer management contract attorney ensure that the contract has a specific length of time attached to it. That is to say that everyone involved in the process should know how long the talent is expected to endorse the product via their social media page. They can break this down into a certain number of posts you need to create or various other timeline options.
- Topics to Cover in the Endorsement – Most brands create a script for their influencers to use when promoting the product. Obviously, the brand wants the influencer to come off as authentic in their endorsement of the product, so the script does not need to be adhered to precisely, but you, as the influencer, should try to hit on key points that the brand wants covering.
These are a few elements that one cannot overlook when creating a social media influencer agreement. A failure to add these specific elements into the contract could cause the contract to become null and void in some respects, and no one wants to see that.
It’s Best to Work With a Brand and Knows How It Will End
All good things must come to an end at some point, and that includes the agreement you have with your sponsors. They will eventually need to move on to other things, and you will likely want to try working with other brands at some point. Thus, you need to have a firm commitment to what the end of your agreement will look like.
Agreements drawn up with a specific end date in mind are generally better overall. It allows everyone who signs the agreement to know the extent to which parties will perform the service. This is critical as it gets everyone on the same page.
Another reason to focus on this is to have a firm exit strategy. It would help if you had the flexibility to move on to another company for endorsements as necessary in the future. Ending your deal with one brand and moving to another is the best way to contribute wholeheartedly to each project you get involved with.
Review All Contract Documents With an Attorney
You don’t have to reinvent the wheel whenever you intend to sign a contract with a brand. With the help of your influencer management contract attorney, you can easily review every contract that comes your way. Instead of starting entirely from scratch each time, you and your attorney can look for some of the most critical elements of each contract. And ensure that they contain the ones you are looking at now.
As an advice, you will save a considerable amount of time by hiring an attorney who can review the most critical elements of any contract you are signing. The lawyer is trained in contracts for social media influencers, and you will always know that you are signing something that will hold up in court. Frankly, this is what many people are after when they start to look at the process of signing social media influencer contracts.
If you want peace of mind knowing you have a contract that will serve your interests, please get in touch with us for more information about how to get started.
Influencer Management Contract Questions?
Contract Review, Termination Issues, and more!
