With the rise of the gig economy and side hustles, more people are earning money through online platforms like Facebook. If you earn money on Facebook, through advertising revenue, selling products or services, or receiving tips and donations, you may be wondering if this income needs to be reported on your taxes.
The short answer
Yes, any money you earn on Facebook is considered taxable income and needs to be reported to the IRS. This includes money from ads, Marketplace sales, Facebook Gaming, and Facebook Stars. Failure to report this income could result in penalties from the IRS.
Advertising and sponsored content
If you monetize your Facebook page through ads or sponsored content, that revenue is taxable. For example, if you’re a blogger or influencer and you earn money from businesses paying you to promote their products, that counts as income.
Facebook will issue you a 1099 form if you make over $600 through their monetization programs. You’ll need to report this income on your tax return, specifically Schedule C for sole proprietors or Schedule E for partnerships.
Facebook Marketplace
Any sales you make through Facebook Marketplace need to be reported as income. While Marketplace is often used for small, occasional sales of used items, if you frequently sell new or handmade products for profit, that qualifies as a business.
You’ll need to report Marketplace sales as income on Schedule C or Schedule E. Make sure to track your revenue and expenses, including the original purchase price of inventory, materials, shipping costs, and Facebook fees.
Facebook gaming and stars
Earning money through Facebook Gaming, including Stars or subscriptions, is considered taxable income. Facebook issues a 1099-MISC if you exceed $600 in earnings.
This income needs to be reported on Schedule C or Schedule E along with any other self-employment income. Be sure to document related expenses like gaming equipment and internet fees.
Tips and donations
If you receive tips or donations through Facebook, including personal fundraisers, that is generally considered taxable income. The IRS requires crowdfunding proceeds to be reported if the donations exceed the actual costs you incurred.
You’ll need to claim any tips or donations as “other income” on Form 1040. Keep documentation on how the funds were used in case you’re ever audited.
How to report Facebook income
Here are some tips for reporting Facebook income on your tax return:
- File Schedule C or Schedule E to report your income and expenses
- Save documentation like bank statements and 1099 forms
- Record income when you receive payment, not when you complete a sale or service
- Deduct any related business expenses
- Pay estimated quarterly taxes to avoid penalties
Examples of taxable Facebook income
Here are some common examples of taxable income earned on Facebook:
| Type | Examples |
|---|---|
| Advertising/sponsorships | Revenue from ads and sponsored posts |
| Marketplace sales | Selling handmade crafts, used items, etc. |
| Facebook gaming | Stars, subscriptions,donations |
| Tips/donations | Money received from personal fundraisers |
Non-taxable Facebook income
In some cases, money you receive on Facebook may not be taxable:
- Gifts received directly from friends and family
- Reimbursements for personal expenses
- Proceeds from selling your own personal used items at a loss
- Crowdfunding to cover medical, education, or emergency costs
However, be cautious claiming exceptions. The IRS rules can be complex when it comes to reporting income.
How Facebook income is taxed
Facebook income is taxed at your ordinary personal income tax rate based on your total annual earnings. It gets lumped in with your regular wages and other income. The specific taxes due include:
- Federal income tax – Based on your federal tax bracket, up to 37%
- State income tax – Varies by state, up to 13.3%
- Self-employment tax – 15.3% for Social Security and Medicare
So a chunk of your Facebook earnings will go to taxes. Make sure to set aside a percentage or make quarterly estimated payments to avoid penalties.
Business expenses you can deduct
As a sole proprietor earning Facebook income, you can reduce your taxable income by deducting any valid business expenses, including:
- Cost of goods sold
- Equipment and supplies
- Advertising costs
- Internet and phone
- Business travel
- Home office expenses
- Accounting fees
- Legal fees
Deducting expenses will lower the taxes you owe. Make sure to track expenses and stay organized with receipts and statements.
Using a tax professional
Reporting business income on your personal tax return can get complicated, especially if it’s your first time. Consider hiring a certified tax preparer or accountant to help you:
- Accurately track income and expenses
- Choose the optimal filing status
- Find applicable deductions
- File the correct tax forms
- Understand quarterly estimated payments
- Stay compliant and avoid audits
A tax pro can identify the best filing approach for your situation and make sure you don’t overlook any opportunities to reduce your tax liability.
Bottom line
In conclusion, any money you earn through Facebook – whether it’s from advertising, marketplace sales, gaming, tips or other means – is considered taxable income that must be reported to the IRS.
Be sure to keep detailed records and report this income accurately, factoring in applicable business deductions. A tax professional can help guide you through the process.
With some planning and organization, you can make sure your Facebook side hustle remains profitable and compliant with tax regulations.