I've heard that donations and cheering bits through Twitch is tax deductible due it being networking. Can someone explain to me the laws/logic behind this and verify it?+

[dastrdlyw]

So I'm a Twitch Streamer, and avid user of their website. I donate money through Streamlabs to streamers, I donate using twitch's currency called bits, and I subscribe to people. One of the streamers I follow has mentioned before that these (or at least bits as far as I remember) are a tax deductible write off because it's considered a networking cost. Can anyone verify the legitimacy of this claim and point me towards the laws and logic that allow me to claim these purchases of bits and donations as a tax deduction? I live in California, and if this can be applied to my twitch community as well, that would be cool to learn how to explain it.

[xmasbaby0]

Donations to individual people are not deductible. Only donations to organized charities are deductible.

[rjs]

There is no tax deduction for "networking cost." Whoever said that either doesn't know what he's talking about or is intentionally trying to deceive people.

[VolvoGirl]

Or maybe they mean as a business expense? Like on schedule C?  Would that be a legitimate expense?

[Opus 17]

I just wonder how many Twitch streamers actually report schedule C income.

[Opus 17 · Accepted solution]

1. "Donations" are only deductible if they are made to a registered exempt organization.  Otherwise you are making personal gifts.

2. "Networking expenses."  You can generally deduct business expenses that are ordinary and necessary to the business.  Gifts that are intended to promote your business can sometimes be deductible business expenses.  However, you must first be in business—that is, you are engaged in an "ongoing trade or business", reported on schedule C, for which you pay income tax and self-employment tax.  Not a hobby, an ongoing trade or business, that you do for the purpose of earning a profit.  Then, you can give gifts of up to $25 per person per year, and deduct them as schedule C business expenses.  Gifts are generally given to customers, potential customers, etc. for the purpose of building your business.

If you are reporting your streaming income on schedule C and paying income tax and SE tax, then potentially you can deduct gift expenses that serve to promote your channel as the source of your income.  I'm not a lawyer, but that would be the logic of deducting your bits as business expenses.  

See chapter 3 here https://www.irs.gov/pub/irs-pdf/p463.pdf

If you don't report a taxable profit from streaming on schedule C, you have nothing to deduct an expense from.  Life expenses aren't deductible simply because they happen, you can generally only deduct expenses that occur as part of generating taxable income.

[Critter]

If you donate to a qualifying charity then you should get a donation reciept from them to use on your income tax return. 

[Codykoko]

I am a Twitch Streamer myself and someone that does their own taxes. The key thing here is the word "donations"and "networking costs". "donation" is used by users of the web site when directly sending money to the streamer by various means.

The term "donation" here is not correct because no income gained either from twitch or indirectly through activities on twitch are "donations". Donations are by a means that is unsolicited in nature, but streamers do this with the intent of making a career out of it.

Next we get into the hairy situation and it really comes down to the fact the U.S. Government has not defined Twitch Streaming as an enterprise with a business code. Thus, we do not have a set of guidelines to follow.

"Networking costs" are not a line item so maybe they were meaning "Advertising Expense"

Bits: They can be used to advertise your channel. "How are bits considered advertisement"? well simple. Bits provide you with a placement of your channel on there channel (Just like a billboard) This is done through the streamers overlays, Twitch bit leader board and the Twitch chat feed. 

Subs: The payment of 5 dollars a month is tricky because in some cases its just like advertising. Its a means to get your name out there to the creator to get on there radar (A streamers equivalent to a business card). Streamers do this to promote their channel to a bigger creator in hopes that in the long run they will get promotions VIA raids, hosts, shout outs, ect. Not to mention it puts you in a good position with their community which can benefit you long term much more.

Direct Paypal Payment: This is dependent on the reason for sending money. Example: A streamer does a creative stream and are selling something that you can put on your wall behind you while you stream. This would be considered office decor. But, if this is just direct payment to bypass the twitch benefits listed above then its nondeductible.

These are just my interpretations of tax law with the inner knowledge of the streaming ecosystem. Burden of proof is on the individual so if you can prove it was ordinary and necessary you'll be fine.

Hopefully it helps.
twith.tv/codykoko

[BMcCalpin]

Codykoko, you are right that terminology is the curse here (only a mild pun on Curse being acquired by Twitch in 2016, hahaha).

In reading your post (thank you) and the Wikipedia article (I am  volunteer editor there), this is my takeaway of Twitch vis-a-vis tax law.

A "streamer" is a person who creates content that is streamed on the Twitch platform. This content can take a variety of forms, but is focused primarily on gaming (does this mean that a lot of the content is streamed online video games, where subscribers watch well-known gamers play?).

***Note for the rest of the audience - see this article (https://dotesports.com/general/news/twitch-streaming-money-careers-destiny-1785) which describes how streamers monetize their content.***

Now that it is clear that you can make money from being a streamer, the salient tax question is, "are you doing this with the intent of making a profit?" This is what Opus17 was referring to above: are you doing this as a hobby where you might (incidentally) make money or are you doing this with the intent to make a profit (i.e., a "business")?

If you are doing this with the intention of making a profit (like Destiny in the above link), then this is clearly a business, which would be reported on Schedule C (assuming that you are not a partnership or corporation). Any income that you receive would be income to the business and any legitimate business expenses would be deductible. The IRS says that to be deductible, a business expense must be both ordinary and necessary. Obviously, what is ordinary and necessary varies wildly between industries.

With this understanding, let's look at the original questions:

Donations are money given indirectly (using an in-site currency known as "Bits", purchased through Amazon Payments) to a channel. A "partner channel" is under "the Partner Program (which) allows popular content producers to share in the advertisement revenue generated from their streams. Additionally, Twitch users can subscribe to partnered streamers' channels for US$4.99 a month, often granting the user access to unique emoticons, live chat privileges, and other various perks. Twitch retains US$2.49 of every US$4.99 channel subscription, with the remaining US$2.50 going directly to the partnered streamer." (from Wikipedia). The partner (i.e. the content creator or streamer) gets some or all of the "donations".

It appears to me that "donations" are like tips to a waiter or concierge, voluntary contributions to a service provider. In this case, the streamer (Partner) reports the "donations" as ordinary income on Schedule C. The donor, however, cannot take this as a contribution, because, as pointed out above by xmasbaby0 and Opus17, contributions are deductible ONLY when they are given to a IRS-recognized charity.

As for the "networking", like Codykoko, I am wondering if this is a euphemism for advertising expenses or other money paid to increase your content's exposure and salability. If so, then the so-called "networking expenses" would be deductible as an "ordinary and necessary" business expense on Schedule C for the partner streamer. (Apparently there are also other classes of streamers like "affiliates" who might also legitimately claim that their activity is a for-profit business).

NOTE: for users of Twitch, there are no deductible expenses, any more than you can deduct buying comic books or music videos. The comments above are primarily for people engaged in the business of generating and delivering content through Twitch.

[Carl]

When it comes to donations, the IRS has clearly defined guidelines on what qualifies a donation to be tax deductible. See https://www.irs.gov/taxtopics/tc506  If the organization is not on the list, that doesn't mean they are not qualified. But to be sure the donor should ask the recipient organization for a copy of the letter they received from the IRS, approving them as such.

The only organization I"m aware of that will not be on the list or have a letter, will be religious organizations; such as a church for example. All churches are 50% organizations provided that church or religious organization is listed as such in the state or local property tax records. Generally (though not always) churches don't pay property taxes. Some churches are even registered with the state (as well as the IRS) as a tax-exempt 501c(3) organization, so be careful there. While a 501(c)3 may be exempt from paying taxes, that does not necessarily make them a qualified charitable organization. Finally, be aware that the tax treatment for a registered non-profit is not the same as it is for a registered not-for-profit.

Also keep in mind that there are two basic types of qualified charitable organizations one can donate to. For organizations classified as a 30% organization, only 30% of what is donated is tax deductible. For organizations classified as a 50% organization, only 50% of the donation is tax deductible.

[Codykoko]

Just because people call it a donation does not mean it is one. Twitch themselves even state that use of bits are not a type of donation in a "Q and A" on how bits work. 

Are there restrictions on using Bits?

• A. Yes, Bits are subject to our Acceptable Use Policy. Bits have no monetary value, so users cannot make a purchase, donate, or tip with Bits.
  https://help.twitch.tv/s/article/guide-to-cheering-with-bits?language=en_US

Bits are a product purchased directly to Twitch.tv and is subject to appropriate tax as an online purchase. The bits are then used in a variety of ways as the user wishes. Buying bits does not equal donating to an individual. When you buy bits it is a purchase of an online good with no monetary value.

As to your point about it being a donation when the article refers to them generating donations is kind of misplaced since nowhere does twitch state in their terms of service or any legal document that anything is a "donation" 

A snip from that same wiki that might be your point:
"In June 2016, Twitch added a new feature known as "Cheering", a special form of emoticon purchased as a microtransaction using an in-site currency known as "Bits". Bits are bought using Amazon Payments, and cheers act as donations to the channel."

This statement is false my above article states what "cheers act as"

The original question should be answered by my last post and this one clarifying "bits" on Twitch.

But subscriptions are another tricky argument because they to are for a purchase of online service. Twitch subs are not just here is 5USD and that is it. Subscription comes with tangible benefits to the user such as:

• Emotes
• Badges
• Special Alerts
• Exclusive Chatroom
• Ad-Free Viewing
• And so on

Twitch subscriptions are both in part for supporting a creator and to obtain the perks of the channel. An argument can be made that perks are the intent of the subscription, not the support.

[LizCPA]

Thank you, BMcCalpin for an accurate answer to this question. First, I am a CPA, and this post in no way constitutes a CPA-client relationship nor is it intend to be a substitute for advice from your tax advisor.

The term "donation" for professional streamers would be considered a justifiable networking/advertising expense. Even though there isn't a specific line item on Schedule C for things like stream content,  there is a line item for Other Expenses where the non-line items can be listed.

If you are looking to hire a tax professional, make sure they have experience with streamers or entertainers/freelancers. You may DM me on Twitch to @liztaps for help finding someone or to ask a "quick question."

[Mystikalginger]

@Opus 17 I think it’s pretty obvious that you have no clue how many people are on the platform making more than a living wage. We’re not talking a couple hundred. It’s more like a couple hundred thousand.

[BillM223]

@Mystikalginger

Much of the difficulty, as I pointed out above under the name of BMcCalpin, is that the terminology that streamers use does not sync with terminology in the tax world, particularly when the same terms are used with rather different meanings.

It should be no surprise that some posters here, being tax professionals, understood the text as tax words rather than the streamer words. And the initial post used donations in the streamer sense, which is NOT the meaning in the tax sense. This is what people were pointing out.

Hence my lengthy discourse on applying tax terminology and treatments to the streamer business model.