All streamers who make any income on Twitch (or any other streaming platform) need to pay taxes.
Unless you've been hiding under a rock, you would know that Twitch is one of the biggest websites on the internet.
Every day, 15 million users use this streaming platform to watch people play video games.
Has the idea of making a living by doing the things that you love—and living life on your own terms—ever crossed your mind?
Would you like to get paid to play video games all day, every day?
Believe it or not, people are able to live an amazing lifestyle simply by playing video games on the streaming platform Twitch.
It sounds great to just keep 100% of the donations from streaming, but keep in mind that even people who make money on Twitch, still need to pay taxes.
How to File Your Twitch Taxes
Considering the fact that you can spend jail time if you ignore paying your Twitch taxes, you need to get your financial document house in order.
Luckily, Twitch and Streamlabs will send you 1099 forms for your earnings. And it's up to you to report it on your personal tax return form (1040).
It’s not as bad as it sounds. Don’t think that getting all your receipts organized and properly logged will feel like you're pulling teeth. It doesn’t have to be that way.
You just need to put time and energy into tracking your expenses.
You have to understand that the US Tax Code factors in how much money you spent to generate your income for your 1099 misc. from Twitch.
Please understand that as scary as the IRS may be, it is also very reasonable. As long as you can document the amount of money that you spent, you can deduct that from your revenue, so the amount of money that's left to be taxed gets even smaller.
There are also other standard deductions that you need to cover with your accountant to decrease your tax liability even more.
What's important is to get out of the mindset that, since you are making money in an “unconventional way,” you are somehow exempt from the IRS.
I'm sorry to be the one to break this to you, but you don’t want to find out in the worst way possible that online income is just as subject to US taxes as “regular” work.
It doesn’t matter if you show up to a cubicle and park yourself there 8-5, or you wake up at five at night—in your shorts and flip-flops—shoot a few streams and make $2,000 a night. That may sound awesome, and it may be the ultimate lifestyle—but, as far as the IRS is concerned, you're engaged in activities that are taxable.
So be clear as to how much money you're making from your streaming, and make sure that you file your taxes accordingly on your normal 1040.
Is Your Twitch Income a Hobby or Real Income?
This can be good news, but it’s also kind of sad: if you earn less than $600 a year from Twitch streaming, you're going to pay less taxes. Your streaming venture is going to be considered a “hobby” by the government.
The good news is your tax liability is going to be much smaller than if you made more than that amount.
If you make more than that amount, it’s considered regular income. And, since you're working for yourself, you might have to pay self-employment tax as well as regular income tax. You basically get taxed twice!
Self-employment tax is a flat 15.3% across the board. And it doesn’t stop there.
If you have incorporated as a business or you are just self-employed, the government requires that you pay 6.2% in social security taxes plus 1.45% in Medicare taxes. What's left after your business deductions are taken out will be taxed according to different tax brackets.
Make no mistake; you might need the help of a professional bookkeeper and accountant to steer clear of tax liability.
The worst thing that can happen is for you to become a successful Twitch streamer and keep crappy books. And, after a few years, Uncle Sam chases after you—and not only do you have to pay back taxes, but you also have to pay interest and penalties.
So you work hard to become a solid brand on Twitch, but you end up paying tons of money in the form of taxes.
The good news is you don’t have to go through this. You just have to keep clear records from day one.
What Can be Deducted for Career Streamers?
Many expenses can be reported on your Taxes, these are called business deductions.
So you have to keep clean books and records on the following:
- Your internet connection costs
- Cost of your equipment
- Any kind of training that you took
- As well as editing costs that you incur to produce your final product.
Similarly, if you are streaming from many different locations, you can deduct the cost of rent as well as related services that you had to pay for to make your Twitch stream possible.
The key is to have an open mind as to how much it’s really costing you to make money on Twitch.
Twitch Taxes Are All Too Real
As the old saying goes, there are only two things that are certain in life: death and taxes.
Every Twitch Affiliate completes a tax interview during the onboarding process.
Unfortunately, a lot of people who are just killing it on Twitch—to the tune of, maybe, $5,000, $10,000, or even hundreds of thousands of dollars in extra income every year—are finding out in the worst way possible that the IRS, the main tax agency in the United States, is on to them.
Please understand that if you generate any kind of income from Twitch, Uncle Sam expects to get a cut.
It doesn’t matter what kind of form that income takes.
Maybe you are very obvious with your ads, and when people click on ads, you get paid a percentage? That’s called a commission, and it’s fully taxable.
Maybe you are running some sort of donation link where you say to your audience that if they like your stream, they should chip in and “keep the lights on.” That donation—whether you like it or not, and whether you accept it or not—is fully taxable.
The same goes with tips and, definitely, corporate sponsorships.
When It Comes to Twitch Taxes, Your Country Doesn't Matter
A lot of Twitch streamers think that if they physically live outside the United States, they can avoid paying taxes to the IRS. Absolutely wrong!
The truth is, according to the US Tax Code, if you live inside or outside the United States, and you draw income from the US, it doesn’t matter where you are geographically located. You have to pay your taxes because that counts as global income.
Even if you earn it from a completely foreign source, that is still fair game as far as Uncle Sam’s tax collection agency is concerned.
The State You Live in Can Impact Your Taxes
Depending on which US state you live in, you might have to pay a whole lot of tax or zero state income tax.
As of this writing, there are about seven US states where you pay zero income tax. The more notable ones are Florida, Nevada, and Washington state. Check with your accountant to see if you live in a state where you can enjoy zero state income tax.
If you live in California, on the other hand, be prepared to pay a hefty fee in state taxes.
As always, if you need help tracking business expenses or even filing your tax return, it's definitely a good idea to consult a tax professional.
Pick Your Poison; There’s Probably a Market for It on Twitch
If you think you're more of a streamer, and you want to just show what's going on on your screen as you play video games, you probably will find an audience on Twitch.
Even if you already have a semi-successful or a full-blown popular YouTube channel, you can double your income by streaming that material on Twitch!
Why stick to just one audience? Twitch can open you up to millions of new eyeballs!
The good news is, if they can do it, you can do it too!