With the rise of social media, more and more people are earning income through sites like Facebook. This includes money made from advertising, sponsorships, affiliate marketing, and more. However, many social media users are unsure if this income needs to be reported to the IRS.
The short answer is yes, all income from Facebook needs to be reported on your tax return. This article will provide a breakdown of the tax implications of earning money on Facebook and other useful information to properly handle Facebook income when tax season comes around.
Types of Taxable Facebook Income
Here are some of the most common ways people earn money on Facebook that would be considered taxable income:
- Advertising revenue – Money made from ads displayed on your Facebook page or in your Facebook videos.
- Sponsored posts – Getting paid by a brand to create and share a post promoting their product or service.
- Affiliate marketing – Earnings from promoting and selling other company’s products through links on your Facebook page.
- Facebook Marketplace – Income from sale of items through the Facebook Marketplace feature.
- Facebook Live donations and tips – Money gifted from views during a Facebook Live broadcast.
- Selling products or services – Revenue from the sale of any products or services marketed and sold through your Facebook page.
Basically, any money you earn by using your Facebook account is considered taxable by the IRS if it meets the tax filing minimum income threshold.
What are the IRS Thresholds for Reporting Facebook Income?
You must report your income from Facebook when it exceeds certain thresholds set by the IRS. Here are the filing requirements:
- Self-employment income over $400 – If you had over $400 in profit earned from self-employment income, such as from advertising, sponsorships, affiliates, etc. on your Facebook account, you must report it.
- Net earnings over $600 – If you received payments totaling more than $600 from any one payer in a tax year, you will receive a 1099-MISC form that must be reported.
So if your total Facebook income from self-employment and 1099-MISC eligible earnings exceeds these minimums, you are required to report the income on your tax return.
How Does Facebook Report Earnings to the IRS?
For people who earn significant income from Facebook, specifically from advertising, sponsorships, and affiliate commissions, Facebook will issue you a 1099-MISC tax form.
They will send this form to you and the IRS if your total earnings from these sources exceed $600 in a tax year. The 1099-MISC reports your non-employee compensation. Other income under $600 or from sources like Facebook Marketplace generally does not get reported directly to the IRS.
How to Pay Taxes on Facebook Income
To properly pay taxes on the income you earn on Facebook, you should take the following steps when filing your tax return:
- Report your 1099-MISC income if you received one from Facebook on the appropriate lines of your tax return. Typically this income gets reported on Schedule C for self-employment income.
- Add up any other income from Facebook you made from sources like Marketplace, Facebook Live, selling goods/services, etc. Report this on Schedule C as well below your 1099-MISC amount.
- Calculate all applicable self-employment taxes on your total profit and report this tax liability properly on Schedule SE.
- Claim any eligible business deductions. As a sole proprietorship, you can deduct related expenses like equipment, advertising fees, and other costs of doing business.
Following these steps ensures you report your full income and pay the taxes owed on your earnings. The taxes due will include both income tax based on your total profit as well as self-employment (SE) tax for Social Security and Medicare.
Estimated Taxes & Quarterly Payments
If you expect to owe $1,000 or more in taxes from your Facebook income for the year, you may need to make estimated tax payments each quarter to the IRS.
Estimated payments are due quarterly based on your expected total tax liability. This helps avoid penalties for underpayment when you file your return. The IRS requires these estimated payments if you will owe more than $1,000 after subtracting any withholding taxes and credits on your tax return.
How to Avoid Penalties for Unreported Facebook Income
To avoid penalties for unreported Facebook income, be sure to report all taxable earnings exceeding the reporting thresholds. The IRS can assess penalties if you fail to report income sources like:
- 1099-MISC income over $600
- Self-employment income over $400
Penalties include:
- Failure to file penalty – 5% per month of unpaid taxes up to 25%
- Failure to pay penalty – 0.5% per month up to 25%
- Accuracy penalties – 20% of underpaid tax
Filling out your tax return accurately and on time avoids these costly IRS penalties.
Deducting Facebook Expenses
As a sole proprietor using Facebook for business income, you can deduct many related expenses to reduce your taxable profit.
Potential deductible Facebook expenses include:
- Equipment like computers and phones used for your business
- Software costs like website domains and business tools
- Advertising expenses to boost posts and promote your page
- Portion of home office costs like utilities and internet if you work from home
- Mileage for any business-related travel
Tracking deductible expenses throughout the year makes filing easier and lowers the taxes you’ll owe.
Hiring a Tax Professional
With the complexities of reporting self-employment income and business expenses, it can be very helpful to have a tax professional prepare your return if earning substantial income from Facebook.
A few key benefits of hiring a tax pro include:
- Ensuring you don’t miss any deductions or credits to minimize your tax liability
- Properly handling quarterly estimated payments to the IRS
- Filing on time to avoid failure to file penalties
- Getting expert advice tailored to your situation
Just make sure you find a reputable tax preparer or CPA that understands how to handle small business and self-employment income taxes.
Using Tax Software to File
For those comfortable preparing their own tax return, small business tax software can also help report Facebook income properly.
Advantages of using DIY tax software include:
- Step-by-step guidance for reporting self-employment income
- Questions to help maximize deductions
- Easy import of your 1099-MISC
- Error checking to avoid mistakes
- E-file returns to get refunds quicker
Just make sure to use the business versions like TurboTax Self-Employed or H&R Block Tax for Self-Employed to handle your specific tax situation.
Conclusion
While Facebook has created new opportunities for earning income, any money made through its platforms is taxable by the IRS if it exceeds the minimum reporting thresholds. By properly tracking income and expenses throughout the year and timely reporting it on your tax return, you can make sure you stay compliant with IRS rules and avoid any unnecessary penalties or taxes.