If I have a monetized youtube channel but do not make the minimum $400 a year which requires me to report to the IRS, can I still report my earnings and write off products I use in my videos?

[fujipro400]

My channel is a photography-based channel where I would use various products in my videos to shoot and make prints to show my subscribers the in and outs of the processes I use.   I don't make a lot of money from the channel but I'm treating it as a business with the intention of making a viable source of income. My problem is that it currently is not a sustainable business but a business nonetheless. 

Is the minimum 400$ income requirement necessary to claim deductions on supplies and other expenses? Or am I able to claim these deductions regardless of income amount?  And if I am able to claim these deductions, am I still able to sell the prints that I make using the material? 

[Opus 17]

Yes, you can report a self-employment business even if your profit is less than $400.  ($400 is the level at which you are required to file tax return if you have no other income.  If you file a return for any reason, you must report all your income.)

You report your gross revenue and deduct your expenses.  It's ok to show a loss as long as you are running the business like a business with a motive to eventually make a profit.  However, if you show too many losses over too many years, the IRS may eventually decide it is a hobby, not a business, and deny your deductions for expenses.  But that's not an issue you have to worry about the first couple of years. 

[fujipro400]

Thank you! This brings up another question though. If I'm not making less than $400 from the business, is it worth the time to report and seek out these deductions given that my taxable income is almost irrelevant? Should I just wait until my channel grows before seeking these deductions out?

[fujipro400]

sorry there was a typo, I meant if I am making less than $400* 

[Opus 17]

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@fujipro400 wrote:

Thank you! This brings up another question though. If I'm not making less than $400 from the business, is it worth the time to report and seek out these deductions given that my taxable income is almost irrelevant? Should I just wait until my channel grows before seeking these deductions out?

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This is a minefield and I want to call in reinforcements.  @Hal_Al @DoninGA @TomD8 

Some brief words:

Sometimes if you show a loss (net operating loss) on your "side gig", you can use it as a tax deduction against your other income (such as your W-2 "day job").  And sometimes, if you can't use all the deduction this year, you can carry the deduction forward to next year (which will reduce your future tax on your business) and sometimes you can carry the loss backwards and use it to reduce prior year income taxes by filing an amended return.

(Remember there was supposedly a "scandal" when the New York Times published Pres. Trump's tax returns and showed he paid little current tax on his business because he was still deducting huge past losses from when he almost went bankrupt.  And for many years, Amazon paid no corporate income tax because they were still deducting their startup losses even after they became hugely profitable.  Ordinary people can sometimes use the same rules for their own benefit.)

This is complex and I don't know enough to comment further with any intelligence, hence the call for reinforcements.

Also, if you purchased equipment for the business, there may be advantages to listing it as a business asset now rather than waiting. 

[fujipro400]

Thank you again! I appreciate it.  I guess I'm just worried about the future and don't really understand the purpose of potentially paying taxes on the business now to justify saving later when I may never make enough to reap those benefits. Though you mention being able to make deductions from the 'side gig' (which is basically what it is) to my day job which does interest me.  If anyone can further explain that in greater clarity or the short-term benefits of filing my youtube as a business, that would be very nice. Thank you again Opus17

[Opus 17]

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@fujipro400 wrote:

Thank you again! I appreciate it.  I guess I'm just worried about the future and don't really understand the purpose of potentially paying taxes on the business now to justify saving later when I may never make enough to reap those benefits. Though you mention being able to make deductions from the 'side gig' (which is basically what it is) to my day job which does interest me.  If anyone can further explain that in greater clarity or the short-term benefits of filing my youtube as a business, that would be very nice. Thank you again Opus17

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Let's suppose you have $50,000 in wage income from a W-2 job and a $2000 loss on your side-gig. (For example, $500 of channel income and $2500 of expenses.)  Sometimes, you can deduct the business loss from your wages and pay less income tax overall.  But I need some other experts to help you understand when this is possible.

Of course, if you have any profit from your side-gig, then you have to report and pay tax no matter how small the profit it.  For example, you were paid $2000 and have $1900 of expenses, you still have $100 of taxable income.  The $400 threshold only applies to the question of "do I have to file any tax return if my only income is self-employment less than $400.")

[AmeliesUncle]

You said it is a business, but you may want to review the "Nine Factors" for hobby vs business rules just to confirm that it is a business: [removed]

Assuming it is a business, you must claim all allowable deductions.  As Opus mentioned, if those deductions create a loss, that loss will offset other income on your tax return (you are almost certainly "At-Risk", which allows the losses to be used in the current year).

[fujipro400]

Hi! Thank you for your reply. The link you sent is broken, but I'm wondering if you could send another. Also, the ad-revenue my videos next to nothing, in fact when I factor in the materials for making images I'm actually losing money. I enjoy making the videos though and because I technically make revenue I wondered about the financial benefits of filing it as a business. As I said in my earlier post, my intention is to eventually make it profitable so I don't think I'd be doing anything illegal, but alas I'm here to get a better understanding. Would those losses reduce the amount of money I get back on my return?

[Opus 17]

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@fujipro400 wrote:

Hi! Thank you for your reply. The link you sent is broken, but I'm wondering if you could send another. Also, the ad-revenue my videos next to nothing, in fact when I factor in the materials for making images I'm actually losing money. I enjoy making the videos though and because I technically make revenue I wondered about the financial benefits of filing it as a business. As I said in my earlier post, my intention is to eventually make it profitable so I don't think I'd be doing anything illegal, but alas I'm here to get a better understanding. Would those losses reduce the amount of money I get back on my return?

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I feel like there is some understanding missing here.

Suppose you have $50,000 of taxable wages.  You add a business with $5000 of losses.  Those two combine so that you only have $45,000 of taxable income to pay taxes on.  Your business losses reduce the tax you owe on your other income.

If you are operating the business in a businesslike manner with a true profit motive, you can deduct your losses against your other regular income. Whenever you finally turn a profit, you start paying income tax on the profit. 

Claiming a business loss would not reduce your tax refund, it would reduce the tax you owe and probably increase your refund.  

[honeybear]

I have a question, what is the " Business code" for Youtube review video earnings?

[DawnC]

519130 - Internet Publishing and Broadcasting and Web Search Portals 

That search for other NAICS or SIC codes, search here.  

@honeybear

@honeybear 

[AmeliesUncle]

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@DawnC wrote:

519130 - Internet Publishing and Broadcasting and Web Search Portals 

That search for other NAICS or SIC codes, search here.  

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The tax return does not use NAICS codes, it uses "Principal Business Activity Codes" (which are based on NAICS, but are usually more broadly categorized).