April 12, 2023 5:33 am ET
In recent weeks, Ali Spagnola has been carefully compiling receipts for thousands of dollars worth of supplies, including 40 pounds of cotton-candy sugar, 15,000 Lego pieces and a red baby grand piano.
File that under ‘huh?’
Based in Los Angeles, Ms. Spagnola makes goofy music and art videos to post online for a living. She’s looking to write off as many of the items as possible when she files her 2022 tax returns.
Now she has to prove to a tax preparer—and the Internal Revenue Service—that these purchases qualify as bona fide business expenses.
“I need an accountant that understands outrageous,” says Ms. Spagnola, who’s on her third bean counter, after the first two couldn’t grasp why, for instance, buying an elf suit and enough fake snow to fill a van was essential.
Will Ali Spagnola and the IRS be in tune when it comes to her piano?Photo: Ali Spagnola
Content creators say they need to spend big to entertain their followers—but making the math work is becoming harder. Over the past year, big social-media companies such as Meta Platforms Inc.,
Snap Inc. and
Pinterest Inc. ended or scaled back cash bonuses for viral posts, and soon ByteDance Ltd.’s TikTok could be banned in the U.S.
So influencers are increasingly testing the limits of what expenses will pass muster with the IRS. The livelihood is hard to explain to Aunt Betty, let alone Uncle Sam.
Rachael Johnson, who is 49 and lives on the road in an RV with her husband and their dogs, had gotten used to receiving monthly payments from Facebook for posting three to four videos a day about the cross-country adventures of the pooches, Peanut Butter Brickle and Fruitycake. That has now been cut, so she hopes the IRS will allow her to deduct pet-related purchases she made last year, such as the $200 she spent on costumes that she and the dogs wore in the fall to re-enact a scene from the movie “The Sound of Music.”
“We did an actual video on top of a mountain,” says Ms. Johnson
.
The hills are alive with Rachael Johnson’s dogs, whose activities include appearing in videos. Photo: Rachael Johnson
She’s confident the government will come through for her since she says she already wrote off $100 she spent on four shoes for Fruitycake—one for each paw—after she adopted him two years ago. (Of course, the government could still opt to sniff out Fruitycake’s footwear in the future.)
“He’s afraid of water so we have to put shoes on him,” Ms. Johnson adds. “Those are pretty expensive.”
The creative-software company
Adobe Inc. estimated in a report last year that about 14 million people in the U.S. earn money through posting social-media content and have more than 5,000 followers on their main platform.
Creators make money in a variety of ways, such as by hosting advertisers, selling merchandise, charging subscription fees—and, until recently, some also received regular payments from social-media companies for popular posts. The livelihood has grown tougher
as tech companies reduce spending over concerns about a slowing economy.
When it comes to filing returns, creators are at a disadvantage because their profession is so new, according to Sima Gandhi, chief executive and co-founder of San Francisco-based Creative Juice
, a startup that provides funding and financial services to such workers. And the tax code was largely written “before the internet existed, let alone YouTube,” she says.
Ms. Gandhi, who used to work for the U.S. Treasury Department, says many creators don’t realize they can deduct even basic expenses including the cost of setting up a limited liability company and equipment such as microphones and selfie sticks. “These things should be reasonable and necessary in the eyes of the IRS,” she adds.
Thomas Jackson has claimed some more unusual business expenses on his taxes before.Photo: Thomas Jackson
Outside Las Vegas, 43-year-old YouTube creator Thomas Jackson, who makes videos about cars and various antics, once live-streamed himself lobbing sex toys at a building. He says YouTube asked him to take the prank video down, but that he still claimed $864 worth of dildos as a business expense on his taxes. “Nobody asked me any questions about it,” he says.
According to the IRS, workers in the gig economy “may be able to deduct expenses related to their gig income, depending on tax limits and rules.”
Paul Matreselva, who does social-media posts about betting on mixed-martial-arts fights, is seeking a deduction for tickets to a December match in Orlando, Fla., that cost him around $3,000. The tickets were prizes for the first eight of his followers to sign up to receive text messages with his betting tips.
“It was a nice night out for my subscribers,” says Mr. Matreselva, who adds he bought the most expensive seats available
. “We were right in front of the cage sitting with celebrity fighters.”
Joe Honey, an accountant in Chattanooga, Tenn., got his first creator client last year—Mr. Matreselva—and his second this year.
“They present some challenges,” he says.
In St. Augustine, Fla., Tommy King, who makes YouTube and TikTok videos about videogames from his bedroom, became a full-time creator last year and says a tax expert he consulted was “dumbfounded” when he handed over receipts for $1,000 worth of outfits for his avatar in the game “Fortnite” and fees for making it
perform dance moves.
Tommy King says a tax expert he met with ‘couldn’t believe I made money from videogames.’Photo: Tommy King
Mr. King says he ended up doing his own taxes last year. In addition to the “Fortnite” goodies, he says he deducted expenses such as $3,000 worth of computer parts and a $500 gaming chair to support his 6’5” frame.
“I’m a really big guy and I need a nice chair,” he says. “It was probably one of the best investments of my setup.”
For his 2022 taxes, Mr. King plans to write off a $180 outlay on four pieces of gear called scroll wheels, which help him build things faster online in games.
“Once you get a good understanding of everything, it’s pretty easy,” he says of filing tax returns. “You just have to make sure you’re doing your due diligence.”
