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Black April: The Twitch Partner Reckoning

April 2016 may have seemed like just another month on Twitch.tv, but the volume of Twitch partners struggling with the complexity of taxes on social media was louder than ever.

 

People are continuing to take their hobby of streaming video games and turning it into careers, many with great success. These successful careers are creating lives for many people that they haven’t experienced before, getting paid to do what they love. With this new found success and income came an increase in payments to the outstretched hand of the tax man, Uncle Sam. While for a majority of the people who have experienced this before, their thought may be: “Seems standard.” In this case, many who were impacted the most were not prepared for the impending tax bill and did not know what steps to take to soften the blow. Successful streamers in the past got away with standard tax preparations in their first year of business, but they did not anticipate the increase in the complexity of their taxes with the increase in their annual pay. This has always been a problem for those making a significant amount of money, a relatively new situation in the Twitch world.

 

Obviously, some may allude to the fact that tax preparation should be common knowledge. It’s hard to disagree with that statement, but many of these young entrepreneurs look at themselves as employees taking home a paycheck instead of as small business owners looking to manage their tax burden. Streamers who grew their respective gaming communities were thrust into a new position that some were not prepared for from a financial standpoint.

 

What is the glaring issue here? The main issue was the lack of knowledge on the streamer front as to how to handle taxes proactively. This was a first time experience for many, and for someone working under the 1099 independent contractor banner, it can be easily forgotten that taxes are a looming liability. The even more forgotten concern is the full 15.3% payroll tax that becomes the liability of the streamer versus only paying half as a W2 employee. If taxes are not adequately addressed in the current tax year, it can create years of future problems, additional payments, and more time spent dealing with the IRS.

 

The silver lining to this story is the viability of the interactive media market as a career for professional players, streamers, or content creators. This growing market is a breeding ground for sponsors to find new users of their products and create lifetime customers. Each micro-community on Twitch represents a unique opportunity for streamers to leverage their audience.

 

With taxes continuing to be an annual problem for streamers, there are solutions. Individual firms, consultants, and even pro-bono counseling groups are being formed for the sole purpose to better educate, prepare, and potentially offer professional services to those in need. One example is the Player Resource Center being developed by esports lawyer Bryce Blum and former professional gamer Stephen “Snoopeh” Ellis to fill this exact void. The growing interactive media environment needs professional infrastructure to help it continue to thrive into the future.

 

Outside of being able to generate a living via streaming, the biggest financial problem that streamers face is proper consideration towards taxes at the end of the year. With many firms looking to help and resources becoming available to those in need, there is hope that these entrepreneurs will continue to increase their efficiency and make the most of their success for years to come.

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Joe Occhipinti
Joe@warrenstreetwealth.com
714.823.3328

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Reduce your Tax Bill: ESPORTS & Streamer Edition

Co-Authored by:
Blake Street CFP® & Joe Occhipinti

 

The world of eSports has turned a hobby into a full time profession for many people around the world. Streamers, professional players, and YouTube stars have been able to take their specific talents and turn their passion into a career.

However, with this newly found cash flow comes a new liability in the form of taxes. The knock from Uncle Sam will only get louder as revenue streams, prize pools, and sponsorship deals increase.  Many eSports professionals find themselves scratching their heads come tax time, trying to sort through W2 wages, 1099 income, and even how to handle income from organizations that didn’t report it in the first place.

The burden remains on the the individual to accrue cash to pay taxes, keep their books, properly report income, and make sure they are in compliance with the IRS. The IRS, as always, does no favors in helping you make your tax bill small.

If you’re a streamer, influencer, or competitor there is a high likelihood that you yourself are considered a small business in the eyes of the IRS. This means you’re liable for the 15.3% payroll tax on your earnings that you might only otherwise be liable for half of as a W2 employee. In addition, you may have liabilities from your business activities and even employees or contractors you may hire to do work for you.  From what we’ve found thus far, few have addressed these variables with adequate intent.

 

How do you fix this problem?

 

1) Keep Good Books

First things first get setup to adequately track  business related expenses and any deductions that may reduce your tax burden.  This is the first and easiest thing to control. A good start is separate banking for your business efforts and a solid piece of accounting software.

2) Incorporation

Next, how are you incorporating your business? Sole proprietor? LLC? S-Corp? Each classification has its own nuances that will impact the bottom line dollars you keep and the liability you bare. It is important to look at not only the amount you make, but also the consistency of earnings, and the amount of liability your services or content generate before choosing a type of incorporation.

3) Build Cash Reserves

As money comes in the door, aside from saving for goals, you need to save for taxes. Companies should be withholding taxes on your W2 wages, but any other forms of income the burden is on you. Generally our clients set aside 20-30% of every dollar of revenue aside for potential taxes. The struggle is real!

4) Tax Deferral & Planning

Still have lots of profits left and nothing to spend it on? Why pay taxes on those dollars now? Consider opening a tax advantaged savings plan. Depending on your need, one might consider a Traditional IRA, ROTH IRA, SEP IRA, SIMPLE IRA, or Solo 401(k). All of these plans allow for tax deferred or tax advantaged savings and investing but each offers a different level of complexity and contribution limits.

5) Hire the Right People

Find folks with the expertise to guide you through the setup and management of each step we detailed above. This person or firm will need to network with their CPA’s and attorney’s or even your existing team to make the most of your new found success. The goal is to minimize your tax bill, grow your net worth, and protect you from some of the common financial pitfalls seen in both traditional and eSports.

 

More About Us

Warren Street Wealth Advisors was founded by a retired Counter-Strike: Source professional, and we are well aware of the challenges you face. We offer services that give streamers, professional esports players, and interactive media talent the ability to transform themselves from just a  revenue generating entity to a well rounded and tax efficient business. If you’d like to learn more, feel free to contact Blake Street or Joe Occhipinti directly.

 

Disclaimer
Blake Street and Joseph Occhipinti are Investment Advisor Representatives of Warren Street Wealth Advisors, a Registered Investment Advisor. The information posted here represents his opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional.  Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.