By: Yielder89 (Accountant By Trade)
So you’ve been steaming big. You’ve got that shiny sub button, a strong following and maybe you even got yourself a few big donations. Life is good. But as we enter 2016 the IRS wants their cut. As a new streamer or even a veteran streamer there may be some things about your tax return that you did not know.
So what are these forms and what do they mean?
So chances are that if you have earned money streaming on Twitch you have received 1099-MISC or even a 1099-K. Not only are these forms sent to you but they are also furnished to the IRS so that they know how much you made during the year. Ultimately, this means that the IRS has a rough idea of how much tax you will owe. These 1099’s that you received, for the most part, represent your gross streaming receipts with a few exceptions. If you receive your money from subs and twitch ads through your PayPal, you may have your income double reported. It is important to keep track of all of the money that goes into your PayPal and bank accounts as you don’t want to be taxed on deposits that were not earned through streaming.
Donations – Common misconceptions
So you have received a 1099-MISC, but you may be wondering what the 1099-K is because you did not receive one. Payment processors, such as PayPal, must report the gross payments you received only if it was over $20,000 and over 200 separate transactions in a year. This does not mean you should not report how much you got from people donating to your stream. Even though you did not receive this form you still need to report this on your tax return.
So you’ve been steaming big. You’ve got that shiny sub button, a strong following and maybe you even got yourself a few big donations. Life is good. But as we enter 2016 the IRS wants their cut. As a new streamer or even a veteran streamer there may be some things about your tax return that you did not know.
So what are these forms and what do they mean?
So chances are that if you have earned money streaming on Twitch you have received 1099-MISC or even a 1099-K. Not only are these forms sent to you but they are also furnished to the IRS so that they know how much you made during the year. Ultimately, this means that the IRS has a rough idea of how much tax you will owe. These 1099’s that you received, for the most part, represent your gross streaming receipts with a few exceptions. If you receive your money from subs and twitch ads through your PayPal, you may have your income double reported. It is important to keep track of all of the money that goes into your PayPal and bank accounts as you don’t want to be taxed on deposits that were not earned through streaming.
Donations – Common misconceptions
So you have received a 1099-MISC, but you may be wondering what the 1099-K is because you did not receive one. Payment processors, such as PayPal, must report the gross payments you received only if it was over $20,000 and over 200 separate transactions in a year. This does not mean you should not report how much you got from people donating to your stream. Even though you did not receive this form you still need to report this on your tax return.
Many people may also be under the assumption that the donations they get are not taxable because they are “charity.” You need to think of your stream as if you are a waiter/waitress that is entertaining your guests (viewers.) When a viewer gives you a “donation” this is more like a tip for your stream and a way of thanking you for entertaining them. Waiters and waitresses are taxed on tips on their W-2’s therefore these tips that viewers give you should be taxed as well.
If you want streaming to just be your hobby and something that you do for fun and not for profit I suggest you remove donation buttons and not get partnered with twitch if you do not wish to be taxed on anything made from streaming. You are streaming on a “for profit” website and even charitable organizations have to report all the receipts they get from donations as well so anything you make needs to be reported.
The IRS knows what someone needs to make in order to live. If you are a full time streamer and don’t report all of your income, you will most likely be in for a nasty audit. Don’t do this to yourself and be a responsible taxpayer and report all of your taxable income. However, there is a way to lower your income through the purchases and expenses that were necessary to keep your stream operating. These will be covered in the next section.
Your streaming expenses and how to lower your gross receipts.
As a self-employed individual, you are allowed to expense purchases for the stream, as well as money used to maintain the stream. Some examples of typical streaming expenses that you may have include: video games you purchased to play on stream (that’s right folks the video games you bought are a tax write off), capture cards, and computer programs that you had to purchase to stream. A major expense like a $1,500 computer must be capitalized and depreciated over its useful life (5 years).
If you have a separate room in your home that you use exclusively for streaming, you can deduct some of the money you had to use to upkeep your apartment or home. For instance, let’s say you lived in an apartment with two rooms (both equal in size), one that you used for streaming only and the other room that you used for sleeping, eating, etc. Then, let’s say you had to pay for repairs, utilities, and rent you would be able to deduct half of those expenses on your tax return. This also applies to mortgage interest and real estate taxes if you own your home. Please keep in mind that only the percentage of your home that you use for streaming is allowed to be deducted. So if your stream room is only 5% of your house you can only deduct 5% of those expenses.
It is also possible to deduct travel expenses related to your stream. You should only expense these fees only if it was used strictly for business purposes such as promoting your stream and is not meant for personal trips. If you had to book a hotel for 7 days, only 1 day you were there on business and the other 6 you used as your vacation, you can only use that one day’s worth of hotel costs as an expense.
There are many things to write off against your stream income and some things are on a case by case basis. Consult a tax professional if you are unsure about what you can use.
Being self-employed and your new responsibilities
Not only can you receive 1099’s but you also have to issue them if the situation warrants it. Let’s say you were to pay someone $100 a month to manage your YouTube, edit videos, etc. At the end of the year just like you received a 1099 you also must issue one to the person that you paid anything more than $600 for the year. You must issue one to any independent contractor that does services for your stream. There is a question when you fill out your Schedule C that asks if you had any 1099’s that needed to be filed and whether you filed them or not. If you wish to take these expenses as a write off on your tax return you must fill out these 1099’s and send them to the IRS and the person you paid during the year.
You may also have to make estimated tax payments during the year. Since you do not have any taxes withheld from any money that you earn you are subject to “self-employment taxes” that you must pay. These are generally Social Security and Medicare taxes that most W-2 employees have withheld. If you do not make your estimated tax payments, you may be subject to penalties on your tax return balance due. If you are having trouble determining how much you should pay you should consult a tax professional.
Health insurance and why you need it
Since 2014, the Affordable Care Act made it mandatory for everyone in the USA to have health insurance. When you go to file your return this year you must answer the question: “Did you have health insurance coverage for the entire year?” If you did not, you may be subject to penalties depending upon how high your income is for the year. This year will be the last year you will be able to file your taxes without receiving a form 1095-A, 1095-B or 1095-C (forms showing proof of health insurance coverage). Next year, you must have proof of health insurance by receiving one of these forms. If you do not have health insurance and are a self-employed individual, you will have to go to your state’s health insurance marketplace to get health insurance. If you get your health insurance through the marketplace you will receive form 1095-A. You may qualify for a health insurance deduction if you receive this form.
Conclusion
Everyone is obligated to file their taxes from year to year, but as a self-employed individual things tend to get more complicated. As someone who is a Schedule C taxpayer you must file your tax return if your Net Income (your income after expenses) from streaming is greater than $400. There are many tax professionals out there to help you figure out your tax situation. Good luck filing your tax returns this year. May your refunds be large and your balance dues small.
Follow us on Twitter so you get all the latest updates! @StreamBigNET
Be sure to also check out our Twitch Streaming Team
If you want streaming to just be your hobby and something that you do for fun and not for profit I suggest you remove donation buttons and not get partnered with twitch if you do not wish to be taxed on anything made from streaming. You are streaming on a “for profit” website and even charitable organizations have to report all the receipts they get from donations as well so anything you make needs to be reported.
The IRS knows what someone needs to make in order to live. If you are a full time streamer and don’t report all of your income, you will most likely be in for a nasty audit. Don’t do this to yourself and be a responsible taxpayer and report all of your taxable income. However, there is a way to lower your income through the purchases and expenses that were necessary to keep your stream operating. These will be covered in the next section.
Your streaming expenses and how to lower your gross receipts.
As a self-employed individual, you are allowed to expense purchases for the stream, as well as money used to maintain the stream. Some examples of typical streaming expenses that you may have include: video games you purchased to play on stream (that’s right folks the video games you bought are a tax write off), capture cards, and computer programs that you had to purchase to stream. A major expense like a $1,500 computer must be capitalized and depreciated over its useful life (5 years).
If you have a separate room in your home that you use exclusively for streaming, you can deduct some of the money you had to use to upkeep your apartment or home. For instance, let’s say you lived in an apartment with two rooms (both equal in size), one that you used for streaming only and the other room that you used for sleeping, eating, etc. Then, let’s say you had to pay for repairs, utilities, and rent you would be able to deduct half of those expenses on your tax return. This also applies to mortgage interest and real estate taxes if you own your home. Please keep in mind that only the percentage of your home that you use for streaming is allowed to be deducted. So if your stream room is only 5% of your house you can only deduct 5% of those expenses.
It is also possible to deduct travel expenses related to your stream. You should only expense these fees only if it was used strictly for business purposes such as promoting your stream and is not meant for personal trips. If you had to book a hotel for 7 days, only 1 day you were there on business and the other 6 you used as your vacation, you can only use that one day’s worth of hotel costs as an expense.
There are many things to write off against your stream income and some things are on a case by case basis. Consult a tax professional if you are unsure about what you can use.
Being self-employed and your new responsibilities
Not only can you receive 1099’s but you also have to issue them if the situation warrants it. Let’s say you were to pay someone $100 a month to manage your YouTube, edit videos, etc. At the end of the year just like you received a 1099 you also must issue one to the person that you paid anything more than $600 for the year. You must issue one to any independent contractor that does services for your stream. There is a question when you fill out your Schedule C that asks if you had any 1099’s that needed to be filed and whether you filed them or not. If you wish to take these expenses as a write off on your tax return you must fill out these 1099’s and send them to the IRS and the person you paid during the year.
You may also have to make estimated tax payments during the year. Since you do not have any taxes withheld from any money that you earn you are subject to “self-employment taxes” that you must pay. These are generally Social Security and Medicare taxes that most W-2 employees have withheld. If you do not make your estimated tax payments, you may be subject to penalties on your tax return balance due. If you are having trouble determining how much you should pay you should consult a tax professional.
Health insurance and why you need it
Since 2014, the Affordable Care Act made it mandatory for everyone in the USA to have health insurance. When you go to file your return this year you must answer the question: “Did you have health insurance coverage for the entire year?” If you did not, you may be subject to penalties depending upon how high your income is for the year. This year will be the last year you will be able to file your taxes without receiving a form 1095-A, 1095-B or 1095-C (forms showing proof of health insurance coverage). Next year, you must have proof of health insurance by receiving one of these forms. If you do not have health insurance and are a self-employed individual, you will have to go to your state’s health insurance marketplace to get health insurance. If you get your health insurance through the marketplace you will receive form 1095-A. You may qualify for a health insurance deduction if you receive this form.
Conclusion
Everyone is obligated to file their taxes from year to year, but as a self-employed individual things tend to get more complicated. As someone who is a Schedule C taxpayer you must file your tax return if your Net Income (your income after expenses) from streaming is greater than $400. There are many tax professionals out there to help you figure out your tax situation. Good luck filing your tax returns this year. May your refunds be large and your balance dues small.
Follow us on Twitter so you get all the latest updates! @StreamBigNET
Be sure to also check out our Twitch Streaming Team
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