Is Patreon’s Income Taxable? The Content Creator’s Dilemma
Are you a content creator? If yes, then you must be aware that in recent years you now have access to platforms such as Patreon to showcase your talent and creativity. In return, you can receive monetary support from your fans. Since Patreon does not withhold any taxes from your earnings you might be wondering is Patreon’s income taxable?
Do Patreon earnings count as income?
Yes, they do. As an artist and content creator you can put out your work on Patreon and your fans send you money on a monthly basis or for each content you create. You might give them perks and rewards in exchange. Patreon charges a commission of 5%- 12% on your monthly income, depending on the plan you choose. Additionally, you have to pay processing, payout, and conversion fees.
Is Patreon income taxable?
Generally, Patreon income is taxable under the gig economy. The IRS defines Gig economy as follows
If you are offering digital goods or services on an online platform you need to report it on your tax return.
How to file Patreon taxes?
Patreon is based in the United States but the creators and patrons reside around the globe: A creator from Canada might receive a contribution from a patron living in the US. Since Patreon works beyond boundaries the tax liability is calculated according to the local tax laws each creator and patron belongs to.
For instance, a patron living in a European country is taxed on their contributions. Patreon will collect these taxes. It will then file and remit these taxes to the respective governments.
In response to how US content creators are taxed the Patreon FAQ section states that:
A creator or an artist living outside the United States must withhold 30% of the contribution received from their patrons residing in the United States. They are then required to remit the withheld amount to the United States Government unless there exists a tax treaty between the US and their domestic government.
Patreon will send the 1099-K Form to content creators, living in the United States, when they reach certain threshold limits. This form shows your gross income excluding platform and processing fees.
What are the allowable Patreon tax deductibles?
In the United States, most of the content creators file and remit their taxes as independent contractors unless they are legally recognized as 501(c)(3) charities. As an independent contractor you are allowed to deduct expenses that are ordinary i.e. common and accepted in your trade, and necessary i.e. facilitates your trade.
The US patrons are allowed to deduct their contributions provided that they meet certain criteria. According to the IRS
If the creators are providing their services without a profit motive and are eligible under section 501(c)(3) to be recognized as charities then the contribution made by patrons will be an allowable deduction.
However, to what extent these contributions are deductible for tax purposes will depend on the benefits you receive by being a member of the charitable organization.
Generally, if a patron receives no benefits against their contributions then the amount will be deductible in full. However, if they have received something such as exclusive access to the content creator, in exchange then patrons need to determine what it’s worth and that amount will not qualify for the deduction.
For e.g, a patron contributed $50 to their favorite creator and enjoyed the perks worth $10 during the year. The total allowable deduction will be $40 ($50-$10).
In recent years, there has been a dramatic alteration in the way content creators are presenting their talent and interacting with their fans. As this evolves it is going to have more tax implications. Consulting an expert will keep you updated on how much exactly you owe to the tax authority.