TAX FORMS HAVE CHANGED SINCE THIS BUT IT’S STILL RELEVANT.
Last week we discussed the IRS form 1040 which is the central place for an individual’s tax return. This week we’re continuing with the Schedule C. As a small business owner you absolutely should not skip over this document unless you really like IRS audits. Hint: you don’t like IRS audits!
If you’re in a partnership, and by that I mean you legally set up a partnership, then this isn’t the document for you. You’ll need to fill out the K-1. I don’t know of many streamers who have partnerships so I’m not planning a full write up on that document. If you’d like to know more about it leave a comment!
Overview of Schedule C
The Schedule C is where you fill out the profits or loss from your business. The concept is fairly straight forward but there can be a lot of moving parts that make it both better for you (reduced taxes) and more complex. As an income earning streamer it might make sense to have someone help you with this form. Yes, you could do it yourself but that’s a lot of effort you’re spending on something you’re probably not an expert on. As always, the IRS has an exhaustive list of instructions for this form so if you’re bound and determined to do it yourself make sure to follow those to the letter.
Business Information
The first section of the Schedule C covers information on your business. You’ll put your name as the proprietor, the name and address of your business, and check the check boxes. Let’s go through the check boxes.
First, you’re going to be the cash accounting method unless you’re REALLY different from most small business owners. Cash accounting means that you log income as you receive it and expenses as you incur them. It’s the most common form of accounting. You are logging your income and expenses, right? Accrual accounting is a more complex method that matches expenses with revenues. It gives you a better picture of the overall situation but is probably more hassle than it’s worth as a small streamer.
Next, select that you “materially participated” in the business. That means you were working in it over 500 hours in the year, you did all or most of the work, or you participated in over 100 hours and more than anyone else. As a streamer you are pretty much guaranteed to have materially participated. In fact, if you think you haven’t reach out to me because I’d love to know what the heck it is you do.
The next one is self explanatory. Did you start the business this tax year? You can answer that, you shouldn’t need my help.
The final two check boxes relate to paying contractors. If you paid someone on a contract basis you may need to file a form 1099 to indicate what you paid them. If you haven’t hired a contractor then you can answer no here. But if you have paid one, check out the instructions listed in the form. We may talk more about that document later.
Income
This is the money you made running your business. Your entire year’s worth of subs, tips, cheers, donations, ad revenue, sponsorships, contract work you did, and anything else that relates to your streaming. Again, you need to make sure you’ve tracked this kind of information all year so your life isn’t hell for tax time. Lines 2-4 and 6 probably aren’t relevant to you. You want to come out of this section with your gross income.
Expenses
This is the part that’s really nice for a business owner. You get a chance to lower your taxes a lot! That’s because you’re only taxed on your net income which is your gross income minus expenses. There are tons of categories here but we’ll go in to some of the common ones for streamers.
What did you pay to advertise (line 8)? Did you run any ads or pay someone to talk about your stream? Add those costs in here.
Did you pay someone as a contractor (line 11)? This could be someone who helps you with YouTube editing or someone who made a scene for your stream. It’s even graphic designers who helped with with design work or a logo. As long as it was something exclusively for your business you enter it here.
You can depreciate your computer (line 13)! That means basically that you get some credit for the wear and tear on your device over time. There are some helpful resources here that you can use to see what you can depreciate. Things like this are why I recommend working with someone on your taxes!
It’s possible that you contracted some legal or professional services (accountants) for your business (line 17). Perhaps you needed to trademark something or protect yourself against a lawsuit. Luckily, you can use those costs to offset your income. Also, if you’re USING SOMEONE TO PREPARE YOUR TAXES LIKE I RECOMMEND that expense can be added in here.
You should deduct state and local taxes (line 23) or licensing costs. There are so many different kinds of fees here that vary by state so I can’t go in to each one.
Did you go to a conference related to streaming or gaming? Line 24 lets you deduct some of the travel, meal, and entertainment cost of doing that! This is one of the coolest parts of being a small business owner. If you’re like me then you might plan on going to these conferences anyways for fun. Now you can deduct about 50% of the cost!
If you paid an employee (not a contractor) wages you can add that amount on line 26.
Finally, if you use your home as your place of business you can write off a potion of your mortgage or rent (line 30). There are a ton of instructions on how to do this correctly, check with the IRS instructions. I’d leave this up to an accountant.
Once you’ve entered in all of your expenses you sum them up and subtract from your gross income to get your net profit or loss.
Cost of Goods Sold
This section isn’t relevant to you. If you were making physical products that had a price to produce then they would. Since you’re in the entertainment and gaming business you don’t have a cost of goods sold.
Vehicle Information
I highly doubt this section is relevant to you.
Other Expenses
If you have expenses that didn’t get entered in to the above lines you can enter them here. You don’t count costs for things that you expect to last longer than one year. For instance, if you bought a nice new mic odds are you plan to use it for more than a year. That wouldn’t go here. However, if you pay for accounting software or to have a business email or any other kind of software (hint, games and in game items) you may be able to add them here. You could really reduce your income subject to tax by carefully tracking your expenses throughout the year!
Conclusion
If you pay attention to your income and expenses throughout the year you can make a huge difference in your tax bill. If you made $50,000 per year in income you’d pay roughly $8,250 in taxes. However, if you have $20,000 in expenses that you can use to reduce your net income you’re suddenly only paying $4,000 in taxes. That’s a lot of savings just by tracking and deducting what you actually spent to run your business! Work with a pro, be diligent, and you can make your financial life a lot easier.
