This story was first published by WorkLife sibling Digiday
While some creators have typically disregarded taxes, the uptick in their paid opportunities has put a new spotlight on the matter.
Ignoring tax responsibilities amidst the growing workload can result in severe repercussions, which underscores the importance of initiatives like the Creators Guild of America (CGA) which advocate on their behalf.
Compounding the issue are tax and financial institutions, which frequently fail to recognize creators as contemporary small business owners. This means that workers in the burgeoning creator economy often find themselves squeezed into outdated tax regulations dating back to 1986, resulting in substantial tax liabilities and headaches.
Simply put, the tax system wasn’t set up to support creators, which is an entirely new field of freelance workers that are building brands and with different needs. Here’s the rundown on why creators find taxes so challenging.
Why creators usually avoid tax
Usually, the reason can be boiled down to creators feeling overwhelmed. When they don’t know where to start, or they feel out of their depth, it’s easy to become avoidant.
As Duke Moore, a creator and founder of Duke Tax noted, creators are intimidated by taxes because they don’t know where to begin, or who to reach out to as most certified public accountant (CPA) firms don’t understand it.
Drew Baker (who is represented by Powered By Media), who has 1.56 million TikTok followers and 124,000 Instagram followers, said he dreads doing his taxes every year. “It’s such an intimidating and stressful process. I haven’t heard of any services out there to help creators specifically, so I’ve had to figure it out on my own,” he said. “The past [few] years I’ve done my taxes through Turbo Tax, but I would like to have an account or service that understands how to do taxes well for content creators.”
Despite these deep-rooted fears, creators do have places they can turn to for help
Duke Tax is one firm that came about after Moore had taken an IRS-approved EA tax course, after which he launched his business. Clients increased during the pandemic when he started creating tax-related TikToks to his (now) 3.5 million followers, which engaged a younger audience.
As Moore tells it, Duke Tax is a concierge-type business, which takes care of tax, bookkeeping, business structure formation and audit defense. Creators can request one-off services, or sign up for various tiered memberships. For the latter, they complete a questionnaire to determine what tier meets their needs best, to ensure they aren’t overpaying for services they won’t use.
“Currently we have around 40 creator members, but we also have about 1,500 public clients,” added Moore. He clarified that members have signed up to the annual subscription tiers, whereas clients use the self-serve, one off services, such as completing yearly tax returns. “We recommend creators to invest in the full-service membership once they’re making around $60,000 or more.”
In short, tier one includes access to a client portal, dedicated tax expert, all year tax advice, quarterly taxes, personal and business tax prep, bookkeeping as well as audit protection — all for around $3,781 per year. Tier two provides all of the above plus quarterly tax strategies and planning to make the most of tax savings, for an annual $5,800 fee, while tier X is reserved for creators who pay $100,000 or more in taxes. This premium tier includes access to all the features of tier 1 and 2 plus advanced tax strategies — for an annual $15,000 fee.
Another company is Creative Juice. The business was launched by co-founders Sima Gandhi, who spent the last 20 years working in financial services for the likes of American Express and the government, and Ezra Cooperstein, who is also president of Night, the talent management company that manages the likes of Mr Beast.
Gandhi explained that most tax specialists don’t realize that creators are businesses, and in most cases, businesses-of-one. “They are the modern day, self-employed, small business owners,” she said. “Our economy has changed so much that creators don’t need to open a retail store or post flyers in coffee shops to get attention. Instead, they open Instagram Shops or make content on YouTube, for example.”
But since the tax law is dated, banks, for example, don’t typically recognize creators as small businesses. Meaning it can be difficult for them to even get a small business banking account. “They don’t understand that there is actually a viable business built around a creator,” she said. “They just assume they make content and there’s not much more to it, rather than seeing the bigger picture that these individuals are building brands.”
Common creator-related tax challenges
Some creators are under the impression that they’re exempt from paying tax. Gandhi said one creator, who she noted is “wildly successful and talented” hadn’t actually filed taxes, and had no idea they were supposed to, another didn’t realize that they should be invoicing to get paid, while another had set up an LLC for their business but didn’t realize they could expense it.
But a more common confusion among creators is understanding what they can (or can’t) write off. Baker can vouch for this feeling.
“It’s hard to do taxes as a content creator because it’s not like a normal job,” he said. “It’s hard to figure out what you can and can’t deduct. If you can’t find a lot of good deductions you are hit with a lot of money to pay back at the end of the year.”
Other gray areas tend to revolve around the type of content they create. For example, food or sports creators. Food creators can write off produce as a supply expense. “They need the food to create content. It’s no different to an office worker needing a keyboard for their computer — they need that supply to do their job,” he said. And typically, creators can’t write off a gaming ticket because entertainment expenses are no longer deductible under the U.S. tax law after the 2017 Tax Cuts and Jobs Act passed. But one creator who works with Moore, relies on going to sporting events to create content.
“If a creator just wants to attend a sporting event, they can’t write it off, because it’s for personal entertainment. But this creator needs to attend, the same way food creators need their supplies, to create content,” said Moore. “We always check creators’ content to ensure the write off aligns with it. I’d always stress that they should consult a tax professional who specializes in the creator economy if they’re not sure, because there are a lot of gray areas.”
What about creators’ (lack of) accounting?
Being able to set up a bank account, or expense various purchases is one thing. But staying on top of taxes is entirely another. Unless creators have previously freelanced and already know the importance of invoicing and saving receipts, creators’ accounts are typically a hot mess.
Both Moore and Gandhi have seen numerous instances where creators combine their personal and business expenses, which creates challenges when it comes to taxes. It then becomes a very painful, time consuming process to identify each purchase and whether it was for personal or business use.
“The number one thing the IRS wants to see, is that creators keep separate accounting for their personal and business expenses,” explained Gandi. She noted by not staying on top of this, creators are trawling back through a year’s worth of paperwork, if they even still have it, from PayPal, Venmo and other bank accounts. By not being organized, “they leave thousands of tax savings on the table because they can’t remember, for example, if that coffee was a personal or business expense,” Gandi added.
Which is exactly why Creative Juice launched. “We figured there has to be a better way for a business-of-one, to be able to continue creating, but also have the right tools at their disposal, so the financial part of their business is approachable.”
As a tech-enabled platform, Creative Juice’s aim isn’t to serve the top 1% of creators, but instead to reach a much broader audience. And the company is equipped to help U.S.-based creators, as well as international creators, providing they have a U.S. business entity. “We’re trying to serve all the creators that don’t have 50-person teams, for example, that Mr Beast has around him,” said Gandhi. “Mr Beast doesn’t have to worry about his taxes because he has people in charge of that.”
The fully-automated platform operates with two options. There’s a free option for creators that are just getting started, who can sign up for the business bank account online, and track their expenses. Once a creator is ready to step up a gear, the Club gives them access to a community, funding options to invest in their businesses as well as more automation around transaction tagging — which can either be paid as $588 annually, or $59 if paid monthly. Additionally, Creative Juice provides a VIP premium service on request, after a number of creators asked for a more bespoke option and involves having their own accountant.
“We really want creators to understand that they are a business, they are a brand, they build community customers,” Gandi explained. “When they’re using Juice, everything they need is in one spot. They don’t have to stress about getting paid or tracking or having the right information on invoices, we’ve just built it all [the platform] to be super intuitive and simple to use.”