Big Tax Mistakes Instagrammers Make and How To Fix Them
Instagrammers can make a lot of money. That’s the goal of a lot of influencers, right? Turn your Instagram account into a money-making business.
That’s a great goal to have. And I have seen lots of people turn Instagram marketing into a way to make money for their families. It seems so simple, right? Get some quality photos, learn about using hashtags, and create a great Instagram post.
There is one big thing that doesn’t get mentioned in the discussion of monetizing Instagram nearly enough. Taxes. Sorry to be that person, but we need to talk about the tax ramifications of making money through social media channels.
Don’t make these big tax mistakes. But don’t worry, if you are there are things you can do now to start fixing them.
Big Tax Mistakes Instagrammers Make and How To Fix Them
These are the biggest mistakes I see being made over and over. Starting a new business has a big learning curve, and I think especially with Instagram and other social media marketing, people don’t always realize they are acting as a business.
Don’t make these Instagram mistakes.
1. Thinking You Don’t Have To Pay Taxes On Instagram Earnings
I am surprised by how many people don’t realize that you do have to pay taxes on earnings from Instagram. I mean, sometimes all you are doing is posting a picture. It’s not like you made a product or sold anything.
Let me end this myth.
If you are making money from your Instagram activities you need to be reporting that income on your taxes.
If you make just the occasional income you could be operating as a hobby. That doesn’t mean you get to pass on the taxes though. And if your goal is to be making money on Instagram and you are pursuing it as a business, you need to treat it as a business come tax time as well.
(Learn how to tell if you are a hobby or a business: Hobby or Business? How To Decide.)
What’s the quick fix to this? Start reporting your Instagram income. Talk to your tax professional about it, but it needs to be included either as Other Income or as a part of some sort of business entity.
I know that just being told to report your income isn’t always helpful. The first thing to do is to start tracking your income and expenses related to your Instagram activities. (If you’re just starting out a simple Excel spreadsheet will do.)
Learn more about how to file taxes as an online influencer: Step by Step Guide To Filing Influencer Taxes. (Yes, this post is directed at bloggers. But if you are solely operating on Instagram it still applies.)
2. Not Reporting Free Products as Income
One of the best things about Instagram is all the potential free stuff you can get, right? Companies send you a product and all you have to do is share a post or story about it. Easy!
Except for one little thing. By accepting the product and then sharing about it you have entered into a barter transaction. Yep, that means that ‘free product’ is in fact income.
Not only is it income, but it is taxable income. You need to add in the fair market value of any free product to your income reporting.
Have you been doing this?
Once again this can be a fast fix. Just add up the value of all the free stuff you have gotten in exchange for a picture or story and add that to your reported income. (And yes, talking to your tax professional is a good idea.)
There are more details about what you have to report. Market value minimums and what you do with the product after you share about it can impact what you have to report. But I find it is much better to assume a free product has tax implications at first. That way you aren’t blindsided if it does count as income and if it doesn’t it is a happy bonus.
If you ever find yourself wondering if you should accept a free product, ask yourself, ‘Is this product worth paying taxes on?’
And learn more about free products for social media influencers–>Barter Transactions: What they are and the tax implications for influencers
3. Missing Out on Valuable Deductions
Treating your Instagram activities as a business doesn’t mean you just have to deal with extra tax headaches. Businesses get something we all love: Tax deductions!
A lot of Instagrammers miss out on tax deductions. And if you are not tracking your business expenses, you are probably missing out on something.
Some of the most missed deductions? Courses and EBooks you go through to learn more are continuing education. Did you buy some presets? Do you boost posts? Did you upgrade your camera for better pictures?
These are just some of the things you should be tracking and looking into with your tax professional.
If you have a dedicated space at home you might even qualify for a home office deduction.
Go through every penny you have spent on Instagram related activities. No, they might not all be deductible. But there is a good chance you missed something.
If you don’t already have a system in place for tracking your Instagram income and expenses, it is time to start one. This is the simplest system, and it is what I recommend for my clients–> The Simplest Bookkeeping Organization System for New Businesses.
You should also learn more about potential deductions so you know what you are looking for–> 14 Big Tax Deductions for Bloggers and Instagrammer.
4. Ignoring Self-Employment Taxes
A big benefit of making your income from Instagram? You are your own boss! You make your hours, you choose your products, and you have creative control over your business.
Being self-employed has some real perks. But it does mean you have to pay self-employment taxes.
This can be a little confusing, especially if you have only ever had traditional work in the past. The short explanation is that when you have an employer, that employer pays half your FICA taxes. You pay the other half. When you are self-employed you are both the employer and the employee, so you pay both halves.
When you are just starting your business and not really making much money you will only have to worry about this when you file your yearly return. But as your business grows you will need to start paying those self-employment taxes on a quarterly basis.
A good practice is to take 30% of everything you earn from your Instagramming and set it aside for self-employment taxes. This way when you file your tax return you have the money ready to go and aren’t stuck with a bill you can’t pay.
This is also a good time to talk to a tax professional to learn when you need to pay quarterlies and when you don’t. Not paying them can result in large penalties, so please do not think you are exempt.
Learn more about self-employment taxes–> Self-Employment Taxes Demystified
If You Want To Be a Business, Act Like One
Instagram and being an influencer can be a great way to add to your family and even make a full-time income. It has some real perks and, as businesses go, very low start-up costs.
But using Instagram as a small business is about more than gaining Instagram followers or interacting with your target audience. It means taking care of the tax side, even though it isn’t glamorous.
The best thing you can do when starting a new money-making venture is to talk to your tax professional. They can help you learn what you need to be doing and any pitfalls to look out for before tax time.
Don’t let taxes steal your success. Knowing where your money is going is key to any good business.
Here is more information to help you out!
The Bookkeeping Checklist Every Blogger Needs
5 Common Tax Mistakes Bloggers Make and How To Fix Them
Business Entities for Bloggers and Online Businesses: Which One Should You Be?
Should I Be an LLC? FAQ for Bloggers and Influencers
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