So you’ve started your own podcast. What started out as a passion project has become a full-time endeavor. Your subscribers are growing and you’ve even begun fielding offers for sponsorships and advertising from brands.
And now that you’re making money, it’s time to start thinking about your tax liabilities.
Podcasting may be a relatively new profession, but that doesn’t mean that Uncle Sam won’t come for you come tax time. You are legally considered as a self-employed individual, which means you are subject to the same tax laws that apply to other jobs such as bloggers.
Unlike traditional employees (also known as W-2 employees), self-employed podcasters are expected to stay on top of their tax liabilities. It’s important that you set aside a portion of your income to cover your taxes.
We will walk you through everything you need to know about taxes for podcasters, plus tax deductions and exemptions to help you save money.
What counts as podcast income?
Any revenue that comes from your podcasting business has to be included in your federal income tax return.
For tax purposes, income covers both monetary compensation (whether from sponsorships, partnerships, advertisements, crowdfunding, or merchandise sales) and non-monetary compensation such as goods and services. You also may need to report gifts from sponsors.
Is podcasting a business or a hobby?
It depends. Just because you make money does not automatically make your podcast a business. To answer that question, we need to look at the difference between a hobby and a business.
The Internal Revenue Service (IRS) defines a business as an entity that “operates to make a profit.” Meanwhile, hobbies are done “for sport or recreation, not to make a profit.” The IRS also looks at a list of factors such as profit motive and the way you operate to determine if your podcast is a business or a hobby.
This distinction is important because a bona fide business can deduct its expenses and claim a net loss if it isn’t profitable. But if the IRS considers your podcast as a hobby, you can only deduct up to the amount of earnings you’ve generated. You cannot deduct expenses that exceed your total income.
Do I need to track my podcast expenses?
Yes! You can’t claim tax deductions if you don’t have the records to back them up. Having accurate records can also protect you if you’ve been selected for an IRS audit.
Make it a point to track all the money you spend to produce your podcast. This includes podcast-related courses you’ve taken, advertising costs, software subscriptions, hosting and rental fees, and new equipment. If you’ve hired an independent contractor like an influencer to work on your podcast, you can claim them as a legitimate business expense as well.
You can also deduct travel expenses for live shows for events. For instance, if you’re going to a different city to record your podcast, you can deduct the cost of your meals, airfare, and lodging.
Keep all receipts (whether printed or electronic) for all podcast-related expenses and purchases. While you don’t need to attach all documentation to your tax return when claiming deductions, you have to be able to substantiate your expenses if the IRS requests it.
What podcast taxes do I need to pay?
As a general rule, the IRS considers podcasters to be self-employed individuals. But to be legally classified as self-employed, you need to earn $400 or more in a year from freelance work. You’ll need to pay your standard income taxes which are based on your tax bracket and filing status.
You also need to pay a self-employment tax rate of 15.3% to cover your social security and Medicare (FICA) contributions. Normally, employees and employers split the FICA tax. However, self-employed individuals are considered business owners by the IRS. And since you’re working for yourself, you’re on the hook for the full tax.
What podcaster tax deductions can I claim?
Podcasters can take advantage of tax deductions to reduce their tax liability. Make sure to talk to a tax professional to claim deductions on expenses that are related to your podcasting work.
For instance, if you record or produce your podcast at home, the home office deduction allows you to claim a portion of your home expenses such as your power bills, internet bills, phone bills, mortgage interest, insurance costs, and occasional repairs as a bona fide business expense.
For instance, if your podcast studio takes up 10% of your total home space, you can potentially claim 10% of your total home bills. You will need to prepare a floor plan for your home office in case the IRS decides to pay a visit.
Other podcasting-related expenses you can claim include software subscriptions and purchases, marketing costs such as Facebook or Google ads, office supplies, new equipment (e.g. computer, microphone), and business-related meals.
Store all invoices and receipts in a secure location. If possible, record every expense in a ledger or spreadsheet to show that you mean business. Since you have no one to rely on but yourself, it’s important to maintain accurate and detailed financial records.
As a podcaster, you’re expected to keep track of your finances on top of building your online business. But if you’re new to self-employment, you may not know what to do next.
To make sure that you’re maximizing your deductions and minimizing your tax liability, contact the tax experts at TFX. You can have a phone consultation, or you can get your tax return prepared by an experienced CPA — it’s your call.