How creators can cut taxes and save money
These 5 practical tips are easy to follow AND might even help you lower your tax bill.
Business and financial manager Belva Anakawenze works with creators on their taxes every day, and has seen the good, the bad, and the downright confusing. But lucky for you, she’s here with some creator-friendly strategies and insights to help you get your taxes right (and hopefully less daunting and boring too).
This video is intended as knowledge-sharing, not tax, financial, or legal advice. Always consult with tax/financial/legal professionals to determine what's best for your business.
If you're a creator, you know you can count on a couple of things, spotty internet when you really need it and taxes. I can't help you with your IT issues but I can help you understand your taxes and give you some ways to plan around them. Here are my top five tax tips for US-based creators.
I'm Belva Anakwenze, and I work with creators just like you every day helping them with business decisions and, of course, their taxes. But before we start, the tips I'm giving you here are for informational purposes only. Tax rules are complex. They vary state by state, so consult with legal and financial professionals to make sure you've got the full picture for you.
First, create an online account with irs.gov. This is an easy way to get all of your account information, balances due, letters, and more. But more importantly, starting in around mid-May you can actually request a wage and income transcript for the previous year. This document is critical for creatives and gig workers. It actually lists all earnings including your W-2s, 1099s, and anything that was reported to the IRS under your Social Security number. You can then compare your records to the transcript and make sure you report all of your earnings on your tax return.
My second tip, don't forget your crypto. By law, you have to report your crypto to the IRS. I don't care which specific crypto coins you're talking about. They are all taxable when you sell or transfer your assets. So even if you're using your crypto to pay for goods or services, those transactions are reportable and possibly taxable. And even if you don't have any transactions, at a minimum, you should be disclosing that you have the crypto holdings. It is a simple checkbox on your tax return.
“The IRS is a pay-as-you-earn entity. They wanna get paid when you get paid, or at least quarterly. If you wait to pay when you actually file your taxes the following year you could encounter penalties of interest.”
Now for my third tip, let's talk about the use of your home. Lots of creators think they can write off their rent or their mortgage if they work from home. It's not quite that simple. Your business is allowed to write off some of your home expenses, in the right circumstances. If you are not incorporated, you can deduct a percentage of your home that is used exclusively for business. This does not mean your dining room table or your living room where you threw up a green screen. I mean a dedicated area that is used solely for your business. If you have that dedicated space then you can write off a percentage of your home, your utilities, your rent, your mortgage, et cetera.
Now, unless you have five bathrooms and you use one of those to make all your TikTok videos you cannot write off that bathroom. It is not exclusively used for your work.
Pro-tip, if you are incorporated, you can actually rent your home, or a portion of your home, back to your business. Now, if you rent your home for 14 days or less that rental income is not taxed to you individually, but it is a write-off for your business. Obviously, there has to be a good reason to rent the home to the business, and it has to be done at fair market value. This could mean renting it out to your business for photo shoots, or business meetings, anything. Just make sure you actually are paying yourself from the business and keeping great records of the activities.
My fourth tip, now this will actually help you when you file taxes next year. Based on your tax liability for this current season we're in start making estimated tax payments for the current tax year. Now the IRS is a pay-as-you-earn entity. They wanna get paid when you get paid, or at least quarterly. If you wait to pay when you actually file your taxes the following year you could encounter penalties of interest. You're essentially paying the IRS their share later than they want you to. So start making quarterly payments to the IRS and possibly your state based on your estimated profit for each quarter.
Let me show you what I mean.
Make an estimate of your business profits in the current year. Now, using last year's tax return you can easily do a web search for your federal and state tax brackets. Use those rates to figure out your business' estimated liability for this year's return. Then divide that estimated tax liability by four and start making those smaller quarterly tax payments to the IRS. That'll help you avoid one large tax bill that you may not have the cash to pay. But instead, you'll be making more manageable payments to the IRS throughout the year. You'll save on those penalties of interest I mentioned earlier, and let's face it, no one wants to pay the IRS extra money. Finally, my last tip, if you need more time file an extension with the IRS and your state. But do not be confused by the term extension. This is just additional time to file your taxes or reconcile them. This is in no way an extension to pay your taxes. Remember, the IRS believes when you get paid so should they, or at least quarterly.
Hopefully, these tips will make filing your taxes this year and in the future a little less overwhelming. Remember that everyone's situation is unique. Consult a financial professional to figure out what makes sense for you. Let me know down in the comments what other questions you have around taxes, expenses, and write-offs, and make sure you like this video and subscribe to this channel for more financial tips and tricks. Until next time, go be creative with your business.