One of the most frustrating things all Americans have to do each year is file their taxes. Shoot, I’m someone who has spent more time than is sane studying taxes and I hate actually going through the process. Unfortunately, as someone earning income from streaming your taxes are going to be more complex than if you just worked for someone else. If you want some tips on your taxes check out our tax basics article and our business class article. Today we’re looking at the basic tax form, the IRS 1040.
Overview
The 1040 is the form you file for an individual (as opposed to business) tax return. As a streamer, this is the form that you’ll be filling out. If you use something like TurboTax to do it yourself their questions are designed to walk you through all of the parts of the form. If you work with someone else to get your taxes done they’ll be working on it as well, though they’ll also have to add their information to the bottom. Please, please don’t try to do this on pen and paper yourself. It’s a pain for you and a pain for the IRS, and that’s an unfortunate amount of pain. If you’re an American citizen you need to do this unless you’re someone else’s dependent and didn’t earn money, earned no income for the last several years, or want the IRS to come knocking at your door for money and potentially for you to go to prison. Yes, even if you’re an American citizen living abroad you still need to fill out the 1040.
Follow the instructions for all of the math the IRS gives you, it can actually be a pretty clear step by step process. A painful, but clear process.
Personal Information, Filing Status, Exemptions
Your personal information should be the same as what’s on your W-2 or other forms you’ve received from your employer, as well as on any business information about you. Nothing complex here, it’s you!
Your filing status determines which tax brackets the IRS applies to you. Single filers pay a higher percentage of taxes on a lower income because well, it’s only you. Married filing jointly means you’re two spouses filing taxes together. This is the most common way to file if you’re married because it has the most lenient rules. Married filing separately means you’re filing two returns as a couple. The IRS… tends to look askance at you if you do it. There are occasionally good reasons to do it but in general you lose a lot of privileges. Head of Household means you are providing more than half of the support in the household, were unmarried for the past year, and have a dependent. This is your single mom/dad the IRS is trying to give a small break in their taxes. Finally you have qualifying widow(er) with dependent child. This status is available to someone whose spouse died within the past two years. Basically, it’s another break for someone in a rough situation. See? The IRS actually does care!
Exemptions are important; you really don’t want to mess these up. You get an exemption for you, your spouse, and each dependent. Why do you care about these? Because if you’re earning less than $155,650 per year you get to deduct $4,050 from your adjusted gross income (explained below) for each person. That’s a lot less tax to pay!
Income
This is where you put everything that you earned this year that the IRS would consider income. Salary, tips, interest earned, dividends, alimony received, business income (we’ll talk about the Schedule C next week but this is relevant for streamers), and a whole bunch of other sources. Basically, it’s possible to earn income from a whole bunch of places so the IRS wants you to collect it all here. Again, if you’re doing the smart thing and using a service like TurboTax or paying an accountant then they’ll ask you the relevant questions to get this all filled out.
Adjusted Gross Income
Your adjusted gross income (AGI) is your income after taking out things that Congress has said let you save on taxes. Let’s look at some of the relevant items for a streamer.
The health savings account (HSA) deduction and self-employed SEP and SIMPLE deductions could be relevant to you. A HSA is an awesome type of account that lets you save up money to pay for health insurance in an amazingly tax efficient way. There are some rules around it but if you have some extra cash and are worried about long term health costs then this is the place for you. A SEP and SIMPLE are two different types of individual retirement accounts that are available to business owners. If you’re looking to save on taxes and save on retirement they can be extremely helpful.
The self-employed health insurance deduction is absolutely incredible. If you have no other health insurance coverage and earn self-employment income, you can deduct all of the cost of buying your own insurance. That can be a pretty big savings.
The last two that can really help streamers are education related. First, you can deduct interest on your student loans. Depending on how much you have on loans this could save you a good amount. Second, you can deduct what you paid in tuition and fees if your income is low enough. It’s $65k for single filers and $130k for married filers with a phase out above that. They want to make sure you’re getting educated!
Taxes and Credits
This is the math part, or at least the first of two math parts. Here you get your itemized deductions (probably something you won’t use unless you own a home or paid a lot in medical bills), you factor in your exemptions, and you get to get some credits for different Congress favored expenses. You can pay less if you had things like childcare expenses, made retirement account contributions, or put solar panels on a house. I’m not going to go in to each one because they’re a lot less broadly applicable. If you really want to know more about a specific credit check out the IRS website. They’ll go into them in incredible detail.
Other Taxes
This is really relevant to streamers! Here you enter in your self-employment tax from schedule SE. If you’re earning income from streaming you’ll probably have self-employment tax. There are some other things to do in this section noting that you had health insurance coverage but really you as a streamer care about the self-employment part.
Payments
You get a couple of potentially nice credits here and you figure out how much you already paid throughout the year. This is where that withholding you did when you first signed up with your employer matters. If you were withholding for taxes throughout the entire year that number should be on your W-2 and you enter it here. Basically, you’re making sure you get credit for the payments you already made.
You also get some credits that you can apply to reduce your tax bill. If you are paying for school expenses for an undergrad education or have children you’ll get to knock some off your bill here. At the end you total it all up to get the amount that you’ve paid so far in tax.
Refund/Amount You Owe
These sections are either fun or scary, depending on how well you’ve paid your taxes throughout the year. The goal is to get a refund of 0 and an amount owed of 0. Why is that? Because no one wants to owe the IRS any money (duh) but if you’re getting a refund that means you overpaid the IRS initially. Basically, you gave the government a loan that they’re paying back with a 0% interest rate. That’s just bad business.
Conclusion
Taxes can be scary and difficult but they’re important to know about. As a streamer your taxes will be more complex than average but you’ll also have more opportunity for savings. The 1040 is the document where it all comes together. It’s the one that will give you a full picture of what you owe/get as a refund. We’re doing a multi-part series on tax documents relevant to streamers so make sure to tune in each week. If you have any questions on the 1040, taxes, or earning income as a streamer leave us a comment.
