Social Media Influencers and What is a Business Deductio

​Social media influencers are making more money, but they are learning that most of it is taxable because many of the expenses they believe are needed for their job are not deductible. 

The Wall Street Journal recently ran an article discussing the impact of federal taxes on social media influencers. 

Here are some of the points from the article:

• According to Goldman Sachs, the “creator economy” is projected to reach nearly $500 billion globally by 2027, doubling its 2023 size.
• Nadya Okamoto has more than four million followers on TikTok and says, “There is not a lot of separation between my life and content creation”.
• Like others who are self-employed, influencers pay taxes on the money they earn after deducting their legitimate business expenses.
• But when makeup, pets and meals play starring roles in social-media posts, figuring out what counts as a legitimate business expense can get very difficult.
• A quarter of influencers say taxes are their top source of business stress, and nearly 25% say they’ve made tax mistakes that cost them money, according to a recent H&R Block survey. 

Business Deduction for Influencers

Influencers are operating a business.  They pay federal income taxes on their income after allowable deductions. 

The question is:  When does an expense meet the definition of a legitimate business expense?  In many cases it is this is very difficult to know.
 

Ordinary and Necessary Expenditures

The IRS operates on the principle that deductions are a "matter of legislative grace," meaning the burden is entirely on the taxpayer to prove their eligibility.

This business deduction test is contained in IRC Section 162.
 

• First, the expense must be “ordinary”. 
• The IRS defines an "ordinary" expense as one that is common and accepted in the taxpayer’s specific trade or business.
• Second, the expense must be “necessary”.
• For an expense to be “necessary”, it must be helpful and appropriate for the trade or business.  It does not necessarily have to rise to the level of being vital to the survival of the business.

Influencers are providing “influence” in many different areas. 

Some are recommending travel.  Others recommend clothes or numerous other things.  Since this is a relatively new area, there’s not a lot of precedent in trying to determine what is “ordinary” for a particular influencer and what is “necessary” since almost anything can be “helpful”. 

What is “ordinary” and “necessary” for one influencer may not be “ordinary” and “necessary” for another influencer. 

Many may choose to play “audit roulette” and just take a deduction with the hope that the IRS never questions it.  Using that approach, an influencer speaking to dog owners can deduct the grooming for their dog that is always in their videos.  But if they get audited and the IRS auditor disallows the deduction, the resulting penalties and interest could easily add up to more than they saved on their taxes by taking the deduction.
 

Home Office Deductions: Regular vs. Simplified Calculations

Many influencers operate from their home.  This is another complicated area. The deduction for the business use of a home remains available to taxpayers who:
 

• Use a portion of their residence "exclusively and regularly" as their principal place of business.
• The "exclusive use" requirement is strictly enforced; if a room is used for both business and personal activities, no deduction is permitted for that space.

Influencers must choose between two methods for calculating this deduction.
 

• The "Regular Method" involves allocating the actual costs of the home—such as mortgage interest, property taxes, insurance, utilities, and depreciation—based on the percentage of the home used for business.
• The "Simplified Method," introduced in 2013, allows for a standard deduction of $5 per square foot for up to 300 square feet, capping the deduction at $1,500.

Topic 305 Recordkeeping Standards

Under IRS Topic 305, influencers must maintain records—such as receipts, canceled checks, and invoices—that substantiate every item of income and deduction on their return.
 

Type of Record	Retention Period	Reason
Income Tax Records	3 Years	General statute of limitations
Substantial Understatement	6 Years	Applies if >25% of gross income is omitted
Employment Tax Records	4 Years	Required for W-2 and payroll audits
Property Records	Life of asset + 3 years	Necessary for basis and depreciation recapture
Worthless Securities	7 Years	Specific provision for bad debt losses

Payments to Contractors Providing Services to An Influencer

Suppose an influencer hires a contractor, like a photographer, to do work for them.  If the influencer pays that contractor more than $2,000 in a year the influencer must issue a Form 1099-NEC. 

If the influencer fails to file the Form 1099-NEC in a timely manner, before January 31^st of the next year, here are the penalties:
 

• 30 days or less after the deadline $60
• 31 days late through August 1.  $130
• After August 1 or not filed at all.  $340

 
CONCLUSION

The above examples are only a small portion of what an influencer, who is running a business, is required to do under the income/payroll tax rules. 

Abraham Lincoln said, "The best way to get a bad law repealed is to enforce it strictly." 

As influencers try to comply with the income/payroll tax system, their frustration and upset will grow and as they pass these frustrations and upsets on to those they influence.  This  will awaken many more people to the many problems inherent in the income tax system. 

As more people see the crazy income/payroll tax system for what it is, they will support eliminating it and replacing it with the FAIRtax.

THE FAIRTAX IS THE ANSWER. 

The FAIRtax is a national retail sales tax on new retail goods and retail services which provides a family credit so that all purchases up to the poverty level for each family are not taxed. There is no withholding from your paycheck, and YOU NEVER HAVE TO FILE A TAX RETURN TELLING THE GOVERNMENT HOW MUCH YOU EARNED AND HOW MUCH YOU SPENT, AND YOU’LL NEVER BE HARASSED BY THE IRS EVER AGAIN.

Many of you have labored tirelessly for freedom from the federal income tax and the IRS.  You deserve a great deal of credit for your efforts to educate the American people on the need to fund the American government in a way that is good for America and returns freedom to the American people.

It is imperative, though, that we don’t replace the current income tax and the IRS with an alternative system that can still be manipulated by the Ruling Elite.  We must let Congress and the President know that the best way to replace the income tax and the IRS is with the FAIRtax. 

Make no mistake about it.  The FAIRtax is a grave threat to the Ruling Elites.  It will strip them of their power and their ability to control us though the tax system.  Their opposition to the FAIRtax will be fierce and unrelenting.  And don’t think for an instant that they won’t use half-truths, deception and downright lies in their desperate attempt to hang on to their power. 

However, with the support of this President, we can finally eliminate the income tax and the IRS!!!

Of course, the best course of action is to not only repeal the income tax and abolish the IRS but to repeal the 16^th Amendment as well so no future administration can ever shackle the American people with an income tax again.

We must come together and ensure that real tax reform, the FAIRtax, is not subverted by the Elites in D.C.

This will take the diligent efforts of all of us.  We need your financial assistance, and we need your grass roots assistance.

If you have contacts that will allow us to get more information to President Trump about the FAIRtax please let us know.

Please email us at info@fairtax.org and we will give you some options on how you can best help us. 

At a minimum, please call your Congressional representative and ask if he or she supports the FAIRtax.  If so, thank him/her for their support and suggest they become a cosponsor of HR-25 if they’re not one already.  If not, ask why not.  If your representative claims to be unfamiliar with the FAIRtax, offer to have someone come to their office and explain it to them. 

Please go to this link to invest in AFFT and help us pass the FAIRtax.  It’s an investment in your and your family’s future. 

THE SOLUTION—PASS THE FAIRTAX!

Why would D.C. pass the FAIRtax and give up this almost unlimited source of donations?  The only way that they will is if the rest of us demand it!
  
Isn’t it time to end this ludicrous tax collection system and the IRS?

HELP BRING ABOUT REAL TAX REFORM AND STOP FUTURE IRS ABUSES

By contributing (investing) $10.40 per month, you help provide a financial base to AFFT.  If you can make larger contributions (investments), these will be used not for salaries, as we are all volunteers, but for the needed updates to our economic studies which will be vital for all future years.
 
Please go to this link to invest in AFFT and help us pass the FAIRtax.  It’s an investment in your and your family’s future.