Chapter 11: How To File Taxes as a Twitch Streamer

Live-streaming is a great way to entertain. It’s also lucrative once you’ve mastered it. It’s a great way to do what you love while generating a substantial amount of cash.

Like all businesses, successful streamers must pay taxes. If you’re starting out on your streaming journey, you might be wondering what types of taxes you’ll be asked to pay.

According to the Internal Revenue Service (IRS), live-streaming is a taxable business once you meet certain income levels. We’ll be discussing deductions and engage in a thorough breakdown regarding how much tax you’ll be paying based on your streaming income.

The materials provided are for informational purposes only. They should not be replaced as tax, legal, or accounting counsel. If you have any questions or concerns regarding your taxes, seek a professional tax advisor.

Managing Your Business 1

What is Taxable Revenue?

Taxable revenue includes revenue earned from advertisements, donations/tips, sponsorships, and payments from the streaming platform you’re using.

Distinguishing Between a Business and a Hobby

Are you a career streamer, or a hobby streamer? This will impact the amount of taxes you’ll be paying, and your eligibility for tax deductions.

The IRS defines a hobby as something which one participates not for profit, such as activities done mainly for sport, recreation, and pleasure. The IRS takes different factors into account when determining if a streamer is a hobbyist or a career streamer.

The following factors come directly from the IRS’s webpage on distinguishing between a business and a hobby:

  • Whether you carry on the activity in a business-like manner and maintain complete and accurate books and records.
  • Whether you have personal motives in carrying on the activity.
  • Whether the time and effort you put into the activity indicate that you intend to make it profitable.
  • Whether you depend on income from the activity for your livelihood.
  • Whether losses are due to circumstances beyond your control (or are expected in the startup phase of your type of business).
  • Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
  • Whether you were successful in making a profit in similar activities in the past.
  • Whether the activity makes a profit in some years and how much profit it makes.
  • Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

You may find more information on this topic in sections 1.183-2(b) of the Federal Tax Regulations.

Managing Your Business 2

Hobby Streaming Taxes

All revenue earned from streaming must be taxed, even if you are categorized as a hobby streamer.

If you earn less than 0600, you still need to file your earnings on the taxable earnings section of form form 1040 (line 21 labeled “other taxable earnings.”)

If you earn more than 0600, the streaming platform will send you the 1099 Miscellaneous income form. Note that a hobby streamer’s income is not subject to self-employment tax, instead, it is subjected to income tax.

Despite considering yourself as a hobby streamer, you’ll still be required to pay taxes on your earnings.

If you are required to file a federal tax return, you’ll be required to file an equivalent state return as well. If you are required to file a state return, and you do not do so, you could be subject to penalties.

Career Streamer Taxes

If you’re a career streamer, the IRS considers you self-employed. This means that you are both the employee and employer of your live-streaming business.

This means that you’ll be paying both self-employment taxes and income taxes. This is different from hobby streamers, who are only required to pay income taxes.

The self-employment tax rate is 15.3%, and it consists of two parts: 12.4% for social security and 2.9% for Medicare.

The income tax rate depends on your income level and filing status.

If you’re just starting out, you may not be earning enough to benefit from the tax deductions and credits to which you’re entitled. But as you increase your income, you’ll want to take advantage of tax breaks to help offset the cost of running your business.

As a career streamer, you are considered an employer and employee. This means you’ll be paying twice the tax rate, which equals the aforementioned 15.3%.

Income tax, on the other hand, is not based on a certain percentage. Instead, it’s based on the total accumulated earnings in a year minus expenses, exemptions, and deductions. In simpler terms, your income tax is based on what you earn.

That said, your income tax rate is not the only thing that matters. You also have to consider all the other tax-related expenses you have to pay, such as self-employment tax.

Under the Self-Employment Contributions Act, employees contribute to their Social Security and Medicare funds. However, self-employed individuals are responsible for these contributions themselves.

As a self-employed individual, you also have to pay the equivalent of unemployment insurance, which is referred to as the “unemployment tax.”

Since you are considered both an employer and employee, it is up to you to pay your share of the taxes. While this may seem daunting at first, it doesn’t have to be. Keep in mind that these taxes can be offset with tax deductions and credits, which can significantly reduce the amount you have to pay.

Managing Your Business 3

Federal Taxes for Streamers

Filing your taxes as a Twitch streamer is serious business. A lot of people don't realize this, but if you're making money on Twitch, you're considered to be self-employed. That means it's your responsibility to track your own income and expenses.

Deductions

Your deductions come from your total earnings before you determine taxable earnings. You can use the Schedule SE to determine your taxable earnings.

Once you've figured out your taxable earnings, you can begin calculating your taxes. Schedule C (Form 1040) is where you will begin to file your taxable income.

What's great about Schedule C (Form 1040) is that it allows you to write off your business expenses. You can see some tax deductions you can write off as a Twitch streamer further down.

Other Important Tax Documents

In addition to Schedule C (Form 1040), you'll also fill out a W-9 form, which is an official form that documents your business information. If you're a partner on Twitch, you'll also fill out the W-8BEN form, which is mandatory for Twitch partners. Make sure you keep all of these forms safe. You'll need them when it comes time to file your taxes.

Managing Your Business 4

The Stair-Step Method

The stair-step method is a way of calculating the taxes you owe depending on the amount of money you've made. It's simple, straightforward, and a great way to ensure you don't underpay or overpay. Earning 0100,000 does not mean you pay 24% tax on all 0100,000; the tax rate may vary.

The stair-step method is calculated by taking your taxable income and dividing it into four equal groups, then determining what your tax is for each group. This is your tax bracket.

For example, let's assume you are a Twitch streamer, and you made 050,000 in the year 2016. Using the stair-step method, you will take 050,000 and divide it into four equal groups; the first group would be 012,500. Your tax for the first group would be 10%. Next, you would take 012,500 and divide it into four equal groups; the second group would be 03,125. Your tax for the second group would be 15%.

The third group is the same as the first: 012,500 divided into four equal groups: the tax for the third group would be 10%. The fourth and final group is 012,500. This group has a different tax rate than the first three groups. The tax rate for this group is 25%.

The total tax for this example would be 10% + 15% + 25% + 25% = 70% divided by four = 17.5% tax rate.

This table shows how you would file your taxes in the year 2020.

Tax Rates Single Married Filing Jointly Head of Household
10% $0-$9,875 $0-19,750 $0-$14,100
10% $0-$9,875 $0-19,750 $0-$14,100
12% $9,876-$40,125 $19,751 - $80,250 $14,101 - $53,700
22% $40,126-$85,525 $80,251 - $171,050 $53,701 - $85,500
24% $85,526 - $163,300 $171,051 - $326,600 $85,501 - $163,300
32% $163,301 - $207,350 $326,601 - $414,700 $163,301 - $207,350
35% $207,351 - $518,400 $414,701 - $622,050 $207,351 - $518,400
37% $518,401 + $622,051 + $518,401 +

Note: The income tax brackets change yearly. This means that your tax brackets next year are subject to change.

State Taxes for Career Streamers

Taxes vary from state to state, and the income thresholds that trigger higher tax rates are different for each state. Tax rates are also different between single and married filers, so always double-check your state's specific rules. Taxes also change year to year.

Tax Deductions for Career Streamers

Taxes vary from state to state, and the income thresholds that trigger higher tax rates are different for each state. Tax rates are also different between single and married filers, so always double-check your state's specific rules. Taxes also change year to year.

In 2018, the IRS suspended the ability to deduct the items related to hobby activities. This means that any new equipment that is used for gaming cannot be deducted, as they are not considered part of the business. Your taxes will still vary on how much you’ll be making, but there will be no deductions based on your setup.

Tax deductions can make a significant difference, especially for those who are in a lower tax bracket. Here are some of the tax deductions that a career streamer can take advantage of:

  • Streaming Equipment — any equipment used for live-streaming such as a mouse, camera, microphone, keyboards, monitor, CPU, and other types of equipment related to streaming is deductible. Upgrading the equipment can also be deducted. This does not include games.
  • Internet Connection — Since live-streaming requires you to use the internet, the IRS allows a partial deduction based on a portion of the internet bill, since one might not use it solely for streaming.
  • Commissioned Services — Fees paid for artists, video editors, and other charges to assist or help the stream can be deducted.
  • Charitable Donations — As of 2020, IRS has allowed streamers to claim up to 0300 of donations without the need for taxing them. This tends to be of great use for channels that run charity streams.
Managing Your Business 5

Forms for Streaming Taxes

The following forms are used for paying taxes on your streaming business. Taxes on streaming revenue will be paid in quarterly installments on a 1040-es if you pay more than 1k in Federal taxes each year.

  • Tax Schedule SE — If you have a net self-employment income of 0400 or more, you need to fill out this form. It is used to calculate your self-employment tax and is due April 15th. This form is used to make estimated quarterly tax payments.
  • Form 1099-MISC — If you received at least 0600, you should receive a 1099-MISC. You will need this form to complete your tax return.
  • Form 1040 — Use this form to figure out your total taxable income for the year. You will use this to complete your 1040-ES and 1040.
  • Schedule SE — Use this schedule to calculate your self-employment tax and fill out your 1040-ES.
  • Form 1040 Schedule C — Use this form to figure out your taxable income if you are self-employed.

An Important Note Regarding Streaming Taxes

The materials provided here are for informational purposes only. They should not be replaced as tax, legal, or accounting counsel. If you have any questions or concerns regarding your taxes, seek a professional tax advisor.