Digital content creators and online brands are always looking for ways to reduce the cost of their businesses. While there are many opportunities to reduce the expenditure of your business, however, tax deductions are often overlooked.
You can use many tax deductions to reduce your tax bill, but they’re not always easy to understand. Moreover, falsely claiming a tax deduction may lead you to a criminal or monetary penalty.
The U.S. tax processes are complicated, and some of the rules may often confuse you while filing your taxes.
The IRS provides useful information on how to deduct your expenses from taxes, but it’s important to do your research before taking advantage of these deductions.
This article will help to understand the rules surrounding digital taxes. Moreover, we have included a short explanation of what you can deduct to save your money.
Understanding Tax deductions for Digital Content Creators
In the U.S. tax system, you can deduct the cost of your computer, phone, internet connection, and everything from your income while creating your digital content.
For example, if you write an article for a blog or website and have used a desktop computer while completing the process, this may be considered as part of your creative efforts that can qualify for tax deductions.
Similarly, if someone is running a business from their own home, they will be able to claim these expenses as an e-commerce entrepreneur.
The home/office deduction may allow you to write off a portion of your rent or mortgage expenses if you work from home as a freelancer.
Freelancers must identify a space in their house or flat as their “home office” to be eligible for this deduction.
By estimating the approximate square footage of the home office and dividing it by the overall square footage of the house or apartment, one may determine the amount of the deduction.
Write-Offs of Your Operational Costs
Traveling
You can deduct travel expenses if you are away from home overnight or traveling for business. This includes airfare, hotel accommodations, and car rentals.
It also includes meals when you’re away from home overnight.
You’re allowed to deduct these expenses if your trip falls under the following conditions:
- You can’t deduct travel expenses to the extent that they are lavish or extravagant—the expenses must be reasonable considering the facts and circumstances.
- Your trip is long enough or far away enough that you can’t reasonably be expected to complete the round trip without obtaining sleep or rest.
Marketing
The cost of advertising and promotion is 100 percent deductible.
This includes costs of internet, print, radio, and TV ads as well as marketing and promotional materials like business cards or flyers.
You can also deduct the expenses related to search engine optimization (SEO).
Inventory
If you are a business owner, you can deduct the cost of equipment you use for your business.
For example, if your company uses an expensive camera to shoot video content, all or most of its costs will likely be deductible from its income tax return.
The same goes for digital content creators who have cameras and other tech tools but also have websites where they sell digital products such as eBooks or courses on topics like photography or filmmaking.
All of these categories fall under “other” expenses. This means that you can potentially claim them for tax deductions even if they don’t meet any other requirements like attaching receipts.
Worker’s Payroll
Following are the some of deductions you can claim if your income falls under this category:
- Wages paid to employees, including directors, officers, and other key personnel.
- Salaries, wages, and other compensation such as bonuses or commissions.
- Benefits that include health insurance or reimbursements.
Claim Deductions on Tax Forms
Once you have calculated different operational costs, you should gather all the relevant tax forms where you need claim deductions.
Moreover, we’d also recommend keeping an eye on the IRS news, so you can comply with the updated rules and regulations as well.
Final Thoughts
Taxation processes can often be complicated, and it may not always be easy to know what deductions are available to you.
Moreover, if you have to interpret your business to claim the deductions, it further leads to additional complexity in your tax filing processes.
It is extremely critical to consult a tax professional in this case who holds years of expertise, so he/she can understand your business and can help you to claim effective tax deductions.
