Live streaming can be a very engaging way to entertain a large audience. Once you've mastered it, it can also be very lucrative. A significant amount of money can be generated while doing what you love.
Successful streamers must pay taxes, just like any other business. As you begin your streaming journey, you might wonder what taxes you will have to pay.
Taxes can be challenging, especially if you're a professional streamer. Whether it's Twitch, YouTube, or any other content creation platform, all earnings need to be reported.
As soon as you start making money off your twitch stream, you need to start thinking about your Twitch taxes.
Do you have to pay taxes from Twitch Stream income?
Yes - Streamers who make any income through Twitch (or any other streaming platform) must pay taxes.
The Internal Revenue Service (IRS) considers all Twitch payouts as taxable income. Amazon keeps track of these sales and reports them to the IRS as required by law. Paying taxes is your responsibility since they aren't withheld from your payouts.
While participating in Twitch's Affiliate/Partnership program, if you do not complete a W9 to specify how much taxes should be withheld, the company automatically withholds up to 30%.
Do Twitch Tips and Donations Count as Taxable Income?
Yes, all Twitch tips and donations are taxed. Donations sent via PayPal, CashApp, or Venmo will be counted as income because they are not simply gifts, but part of your income as a Twitch streamer.
Helpful Resource: Are tips taxable? Guide
Do you have to pay taxes for Twitch if you live outside the US?
Yes. Twitch streamers often think that if they live outside the United States, they can avoid paying taxes. This is false.
US tax law says that it doesn't matter where you live, as long as you receive income from the US, whether you live inside or outside of the country. Taxes must be paid because that income is considered global income.
You are still liable for United States taxes, even if you earn that income from overseas.
How much to set aside for Twitch taxes
Including donations and tips, tax professionals recommend setting aside 30% of your income made from Twitch streaming. By doing so, you will be prepared come tax season.
There are ways to reduce taxes by taking write-offs. You can read more about those below.
Is Your Twitch Income a Hobby or Real Income?
You'll pay less taxes if you make less than $600 a year from Twitch streaming. This is because the government will consider your streaming venture to be a hobby.
More than that amount is considered regular income. Furthermore, since you are working for yourself, you may have to pay both self-employment tax and regular income tax. In essence, you get taxed twice. All self-employment taxes are 15.3%. And, that's not all.
As a business or self-employed individual, you must pay 6.2% in social security taxes plus 1.45% in Medicare taxes. After you've taken out your business deductions, the rest will be taxed according to different tax brackets.
Helpful Resource: Business vs Hobby: How the IRS Decides
How to File Your Twitch Taxes
If you ignore Twitch taxes, you could face jail time. So, keep your financial records in order. You will receive 1099 forms from Twitch and Streamlabs for your earnings. Then, it's your responsibility to report it on your personal tax return (1040).
You don't have to worry about it as much as you think. You don't have to spend hours organizing and logging your receipts. There is no need to do so. Keeping track of your expenses just takes a little bit of time and effort.
When you file your 1099 misc, the US Tax Code takes into account how much money you spent generating that income. If you can document the amount of money you spent, you can deduct it from your revenue, which reduces the amount of tax due even more.
To lower your tax liability even further, you should discuss other standard deductions with your accountant.
The most important thing is to get rid of the idea that you are somehow exempt from the IRS because you earn money in an "unconventional manner." Online income is just as subject to US taxes as “regular” work.
Thus, be sure you know how much money you're making from your streaming, and file your taxes accordingly on your normal 1040.
Tax Deductions for Twitch Streamers
Deductions can play an important role in reducing your tax bill, especially if you are in a lower tax bracket. Career streamers can take advantage of the following tax deductions:
For live-streaming, equipment such as a mouse, camera, microphone, keyboard, monitor, CPU, and other types of equipment are deductible. The cost of upgrading equipment is also deductible. Games are excluded from this deduction.
Since live streams require you to use the internet, the IRS allows a partial deduction based on a portion of your internet bill, since you might not use it exclusively for streaming.
Artist fees, video editing fees, and other expenses incurred to assist or help the stream may be deducted.
Charitable donations of up to $300 are allowed to be claimed by streamers as of 2020. This is extremely helpful for channels that run charity streams.
What happens if you don't file your taxes for Twitch?
Whether you miss it by only a day or two, failing to file and pay a Twitch income tax return on time will result in penalties and interest from the IRS. It can even lead to jail time.
Amazon files all of its payouts with the IRS, who inspects all the documents - so make sure to file accurately and on time.
Helpful Resource: What happens if you don't pay taxes?
Preparing for Twitch Taxes
Having trouble understanding your taxes? You're not alone. Making things easier for yourself can be achieved by hiring a professional CPA or accountant.
Remember, you risk getting in trouble with the IRS if you fail to pay your twitch taxes.
If you want your taxes to be accurate next year, no matter whether streaming is a hobby or a career, there are certain things streamers need to keep track of. A professional can help you make sure that you're completing the forms that you need, and paying the correct amount of tax.
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