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p.s. This isn’t financial, legal, or tax advice. However, if we see an area where those processes could be smoother for you, we may make suggestions.
The Benefit of Writing Off Expenses
Many creators conserve, conserve, conserve.
They never spend a dime, afraid to make an investment in their business because it reduces profit. But is that a good idea?
Expenses can serve a couple purposes:
1. They’re investments you make in your business, growing it to bring in more revenue.
2. They reduce your taxable income, or the amount you’ll owe taxes on.
Here’s an example of B:
For simplicity sake, we’re keeping profit and taxable income the same, although this isn’t always the case. This is also a simple tax liability calculation—there’s a lot more that usually goes into it.
In this scenario, Creator B paid $6,250 less in taxes despite having the same revenue as Creator A. This is because Creator B made more investments (expenses) into their business.
A quick note: Spending more is only a strategic move if you have a real investment you want to make in your business. Lower profit ≠ better if you’re spending on random, unnecessary things.
What You Can/Can’t Write Off
We discussed this more in a tax workshop earlier this year. But here’s the TLDW:
Expenses must be ordinary and necessary for the function of your business to be a reasonable write-off.
Here are some of the most common expenses content creators take:
#1: Props and Accessories
Whether it’s a wax figure of Jackie Chan, a Tesla you drive in the intro of a video, or simply a tripod—if it’s used solely as a prop or accessory in your content, you can write it off.
Yep, you did read that right…a Jackie Chan wax figure…a $16k one, at that.
#2: Home Office/Rent
Let’s say you have a 2 bedroom apartment and use one room as your home office. You can write off a portion of your rent as a business expense.
Here’s what this might look like:
• $3,000 rent
• 1,200 sq. ft. apartment // 150 sq. ft. home office
• $375 per month write off
The square footage of the home office (150) is 12.5% of the total square footage of the apartment (1,200).
$375 is 12.5% of the total rent, or how much you deduct from your rent expense.
What if I shoot content everywhere in my apartment? Can I write off my entire rent? Eh, probably not. If you do, it could raise an alarm with the IRS. Talk to a CPA to find what an appropriate amount would be to write off.
#3: Automobile
You can write off a portion of your vehicle expenses, commensurate to how much you use the vehicle for business purposes.
Here are a few examples of when you can write off vehicle expenses:
#4: Meals
On the topic of In-N-Out—what about writing off meals?
This is an expense creators tend to get wrong.
You can write off 50% of any:
• Client or business meals: Meeting with other creators you collaborate with, clients, etc.
• Travel meals: When you’re at a conference or traveling to an event
• Food at employee parties: Celebrating your team or business clients
• Content shoots: Purchasing meals to make reviews about or feeding your team during a long shoot day
You should not write off matcha with your creator friend and call it a “business meeting.”
#5: Clothing
You can’t write off an outfit just because you featured it in a video. If that were the case, we’d never spend a dime of our personal dollars on clothes again.
Here are a few questions to ask yourself to know whether you can write off a clothing item:
#6: Giveaways
You can write off giveaways as a marketing expense if the goal is to drive engagement to your content.
But beware—depending on what and how much you give away, you may need to send a 1099 tax form to recipients, especially if the value is over $600.
(This is where a lot of creators make mistakes. )
How to Track Your Expenses
Knowing what you can write off is half the battle.
You need to make sure you carefully and accurately track your expenses.
Reality is–content creators have unique, scattered expenses. From equipment, to travel expenses, to meals for shoots, studio costs, and more.
You need a bookkeeping tool that tracks those expenses accurately.
Karat's AI bookkeeping automatically recognizes and properly categorizes these creator-specific expenses, ensuring you capture every legitimate write-off.
Quick Links
This week with Karat...
This week in Creator Studio (our free Discord community) we’re interviewing Will Hanisch, an entertainment attorney!
Join this week's Creator Talk at 1:00pm PST using the link below.
