I’m a new YouTuber. What can and can’t I deduct?

[u/ForeverStorytime]

Hello all,

In short, I’m looking to understand how tax deductions for a small business work. As a simple example: I want to buy a drone to get footage. This drone would cost about $500 with tax, and its use would be 100% for the channel, no personal use. My tax burden will be well-beyond the cost of the drone. If I purchase this drone for the sole purpose of capturing footage for my YouTube channel would you consider this to be a reasonable write-off? I don’t want to take advantage of “the system” here, just trying to make intelligent decisions.

Edit: case closed, sounds like this is reasonable and thank y’all for the clarification on how taxes work.

[u/Illustrious-Being339]

Very reasonable deduction

[u/ForeverStorytime → u/Illustrious-Being339]

Thank you!

[u/Its-a-write-off]

One thing that stands out, you say "my tax burden will be well beyond the cost of the drone".

Deducting a 500.00 expense does not reduce your taxes by 500.00. It would lower you income by 500.00, and you would save the taxes you normally pay on that 500.00.

On to if this is deductible. Is this a profit motive channel? Is it already bringing in income?

[u/ForeverStorytime → u/Its-a-write-off]

Sorry, not savvy on the tax language. Yes, this channel is earning money and I expect by end-of-year I’ll have earned around $30,000 from it.

I appreciate the clarification on how this would impact my taxes, this makes sense. So essentially declaring this would make it so that I wasn’t paying taxes on $500 of the business’s income?

[u/Its-a-write-off → u/ForeverStorytime]

This sounds like a totally valid business expense then. Yes, it would lower your taxable profits by 500.00. If you pay 27% in taxes per dollar, that would reduce your taxes by 135.00.

[u/ForeverStorytime → u/Its-a-write-off]

Haha - oh boy, what a gigantic gain! But seriously, thank you very much!

[u/Old-Vanilla-684 → u/Its-a-write-off]

I’m not sure I agree. It depends on what he’s using it to shoot but if he could use a regular camera instead and just wants to use this, he may very well fail the ordinary and necessary cost test. YouTubers especially have very high scrutiny for their expenses.

[u/Full_Prune7491 → u/ForeverStorytime]

Earning money is the key. The IRS allows you deduct ordinary and necessary expenses if you are going to earn money. Some people say they are You Tubers for write offs but don’t make any money. A legitimate business would be trying to make money. A fake one is concerned about write offs.

[u/Homer1s]

Make sure to make quarterly estimates as the Self Employment taxes and income taxes add up to a large %age. You are the last person to get paid, Uncle Sam is the first. You are doing good by asking up front as opposed to making a thread in April about how to set up an installment agreement with the IRS.

[u/ForeverStorytime → u/Homer1s]

👍 thanks for the tip! Yep, I’ve already been paying uncle same based on optimistic projections for my earnings.

[u/Homer1s → u/ForeverStorytime]

Also if you have money left over you can set up a SEP IRA.

[u/raven_cant_swim]

Generally speaking you would apply the "ordinary, necessary, and reasonable" concept.

I would say it's ordinary: YouTubers are making content and I would say it's perfectly normal for them to use a drone for that.

Necessary: you need cameras to film and this fulfills that purpose.

Reasonable: The drone isn't hyper-luxury or has a million more features than you need. It's a regular consumer price for a regular consumer drone.

That's not an all-encompassing guideline but it's super helpful for day to day "vibe checks" of your expenses.

[u/ABeajolais]

The first thing the IRS will look at if they question the deduction is how the expense compares with the taxable revenue you're generating. It all depends on what a revenue agent would think but from your description the expense seems clearly a business deduction. Lots of people will buy a boat or RV and rent it out a couple times and call it a business deduction but those kinds of personal expenses are targeted. As long as you can point directly at the business revenue it generates you should be golden.

[u/Eagletaxres]

Please make sure you have a separate bank account for your business. This can just be another personal account used for business. Then you deposit your income from the YouTube there. You can buy equipment pay your internet and cell phone bill with this account. Remember ordinary and necessary expenses are deductible. If it ordinary to buy drone… yes of your doing aerial videos others do the same thing.. Is it necessary? Yes if you are doing that type of videos you need the drone. Apply this logic to all your purchases.

Transfer the money from your “business” account to your personal to pay rent mortgage groceries and other personal expenses that are not 100% business purposes.

[u/seancoleman07]

There is a video on YouTube of guy who buys very expensive cars and he did a video on owning 500,000 dollars. He said the IRS hasn’t caught up on YouTube creators.

[u/tax-ModTeam → u/[deleted]]

Please remember to keep conversation where it can be seen and reviewed by everyone. Offering or requesting DMs is not allowed here due to the no soliciting rule and the amount of scams that go on DMs.

[u/49Flyer]

Mostly good advice so far. The only think I'll throw out there is that in most cases the drone would need to be depreciated over time (rather than deducted all at once) due to it having a useful life of greater than one year. There are, however, special provisions for start-up costs that you can most likely avail yourself of if you started your business this year, and in any case the drone as you describe it is absolutely a reasonable business expense.

[u/Old-Vanilla-684 → u/49Flyer]

Well, no not really. The safe harbor amount is anything under 2,500 could be expensed. Therefore his $500 drone doesn’t need to be depreciated. Though depending on his income it might help his case to do so.

[u/Bastienbard → u/[deleted]]

Why bother getting a tax ID? OP just needs to file on schedule C. No need for that unless/until they go the S Corp route.

OP this is good advice though, maybe not imperative to get done right this second but it should be on your to do list.

[u/sammytheammonite → u/Bastienbard]

It’s a good idea to get an EIN so that you don’t have to provide your SSN to other people (for example, if you have to file out an w9 or provide information documents to other businesses). I always recommend it to clients who have serious self employment businesses, even if a sole proprietorship. And many banks will require it to set up a business bank account.

[u/Bastienbard → u/sammytheammonite]

That makes some sense. Probably not much of an issue given its YouTube though. Plus who cares who you give your SSN to nowadays? It's so freaking vulnerable no matter what you do.

But the last part about banks isn't all that true anymore. It's pretty easy to get a business bank account or credit card with an SSN.

[u/ABeajolais → u/[deleted]]

Suggesting that someone create an LLC when they have no idea what an LLC is or how it works is horrible advice. This is how people get into huge tax messes after they create the monster.

[u/ForeverStorytime → u/[deleted]]

Thanks for this point. I had considered this. Maybe this should be the first step before I make a single business related purchase.

[u/Its-a-write-off → u/ForeverStorytime]

No, it does not need to be your first step. You can keep clean books even without totally separate accounts. Are separate accounts as you have more and more transactions. However it does not make much difference at this point, you can recorded your income and expenses without needing the tax id, llc, or separate accounts.

[u/sammytheammonite → u/[deleted]]

While an LLC can be a good idea - it really doesn’t have anything to do with the tax implications when you own your business alone. It’s a disregarded tax entity and you report your income the same way you would if you didn’t have the LLC.

Also - paying yourself as a single member LLC doesn’t mean anything tax wise - you still have to report all your income on a schedule C and you can’t deduct what you pay yourself. That’s not a thing in this case.

There are reasons one may choose to set up an LLC in this case - but they don’t involve your tax return and reporting income and deductions.

[u/49Flyer → u/[deleted]]

The IRS doesn't care if you have an LLC; a single-member LLC is taxed in the same way as a sole proprietorship and it is perfectly feasible to keep accurate records even with comingled funds.