How to Pay US$0 in Taxes for My OnlyFans Business
You’ve read about large companies, like Amazon and Facebook, have become corporate legends amongst entrepreneurs for not paying taxes while bringing in large amounts of income. As an OnlyFans business owner/operator, wouldn’t it be great to grow your business while not paying taxes? After all, if a multibillion-dollar company can pay US$0 in taxes, then why can’t a smaller business do it too? Well, you can do it too.
The first hint in how to do that is that companies are well known for doing this, not independent contractors or employees. When you incorporate your business, you are able to take advantage of more tax deductions and those deductions can not only substantially reduce your taxable income, but also be able to completely eliminate taxation of your company’s earnings. Let’s look at the corporate structures that can eliminate your tax burden.
Pass-Through Business Entities
A pass-through company’s income passed on to the corporate owners and taxed on the owners’ personal tax returns. In short, the corporate earnings are not being taxed at the corporate level, but at the individual taxpayer level. This means that if your company has high earnings, or you are receiving income from multiple pass through companies, you are most likely being taxed at the higher tax rates.
Sole proprietors, partnerships, S corporations, and limited liability companies are pass-through companies. These corporate entities are easy to firm, have limited filing and financial documentation requirements, and are quite flexible. However, none of them can retain corporate earnings, The only way to stop your corporate earnings from being taxed is to deduct allowable business expenses from them to the point where you no longer have any corporate earnings and/or to retain your corporate earnings. Retained corporate earnings are not taxed because they have not been disbursed by the corporation. They are considered reserve cash or liquid assets that are immediately available for use.
C Corporations and LLCs
Corporations and LLCs with C corporation tax treatment are able to retain their corporate earnings. They are also able to deduct research and development costs, market exploration expenses, and other expenses that cannot be used by independent contractors and employees.
Let’s look at the differences between C corporations and LLCs.
C corporations can be privately owned, even by one person, or publicly owned by shareholders. If you are a small business or startup, you may not want to be saddled with the burden of operating a C corporation, especially if you must maintain all the records by yourself because you don’t have the money to hire someone to do it for you. Moreover, C corporations require you to file financial statements every year, hold annual corporate meanings, and be more structured than pass-through companies. So, from a cost-benefit-risk analysis, you may be more willing to pay taxes than invest large amounts of time that you could have spent on your business or with your family and friends doing administrative work to maintain your C corporation status.
LLCs with C Corporation Tax Treatment
LLCs with C corporation tax treatment are able to retain their earnings and claim almost the same tax deductions as a C corporation. The major differences between these kinds of LLCs and C corporations are that the LLCs have fewer filing requirements, fewer administrative requirements, and don’t have shareholders. Note, LLCs can have investors and be formed by a group of people or one person. These corporate formations are the most flexible and beneficial for small business owners/operators. Moreover, as a business grows, this type of corporate structure can be adjusted to accommodate the growth of the enterprise.
LLC Pays Salary & No Taxes
An LLC with C corporation tax treatment can pay its owners and employees compensation for their services to the company. All salaries and wages paid out by the LLC are tax-deductible. Moreover, the income paid out to the owners and employees is taxed as personal income. If the LLC owners don’t want to treat their staff as full- or part-time employees, they can hire them as independent contractors. Independent contractors are responsible for paying state and federal taxes on the earned income disbursed to them by the LLC.
This can be especially useful for an LLC owner with no regular employees and who has other sources of income. The LLC can pay for everything needed to run and operate the business, the owners can be treated like employees (salary and benefits), and they can decide how much financial compensation will be disbursed by the company. This means that they can decide how much they will pay in personal taxes based on their income and investments.
Independent Contractors: The Self-Employed
Independent contractors are self-employed people who work for themselves and assume responsibility for their state and federal taxes, and social security and Medicare contributions. Since their employers do not deduct the mandatory government payments from their earned income every time they are paid, they must make those payments themselves. Independent contractors who earn US$600 or more must file a 1099 at the end of the current tax year. These kinds of business people should be paying taxes quarterly, because the USA has a pay as you go tax system. That means that the taxes are due when the income is earned. So, the U.S. Internal Revenue Service (IRS) wants independent contractors to pay their taxes quarterly based on their projected earnings.
Independent contractors pay a flat 15.3% tax on their earnings. If their earnings are substantial, they can get in trouble with the IRS for not making quarterly tax payments. This ‘trouble’ comes in the form of you being required to pay back taxes, being charged interest on your back taxes, and you being charged a penalty fee for failing to correctly predict your annual income and paying your taxes in a timely manner. This financial ‘trouble’ is intended to motivate independent contractors to pay their taxes because the potential cost of not paying them is so great that it is in your best interest financially speaking to make the correct payment on time.
Ways to Reduce Your Tax Burden as an Independent Contractor
If you prefer to be an independent contractor, but don’t want to pay taxes on your OnlyFans business income, then there are ways to offset your income so that you pay zero taxes on your earned business income. To do this, claim all the personal and business tax deductions that you legitimately claim (e.g., don’t claim someone else’s child to get a tax credit). Other things that you can do to decrease your income from your OnlyFans earnings are: maximizing your retirement plan contributions, maximizing your business and insurance premiums (for useful policy benefits), and investing your income in ways that defer your taxes until a later time.
Investments that can grow your money while you pay no taxes on the money earned from the investment, or, at the very least, result in your investment income being taxed at a lower rate, include investing in financial markets, real estate, corporate and public bonds, private and public corporations, and startups. The losses from these investments can be deducted from your personal income. Whereas, the gains can be reinvested into the same investment or moved to another investment. They are not recognized as capital gains until you withdraw your funds from the investments.
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OnlyFans Specific Tax Deductions
OnlyFans content creators, like you, sometimes wonder if there are any special business deductions they claim to reduce their taxable income and also to offset the costs of producing their content. There are a variety of tax deductions that can be claimed by OnlyFans content creators, especially if they produce exclusive or niche content.
If you wear special costumes (e.g., cultural, historical, sexy clothing) and have to be accessories for those outfits, then you can deduct the cost of them. Note, the costumes that you buy for your OnlyFans productions should not be worn outside of business related activities. If you are using the clothing or accessories in your personal life, then they cannot be deducted as a business expense. No tax deductions can be claimed if you personally benefit from the costumes.
Generally, hair care and styling costs are not tax-deductible because when you are finished producing your OnlyFans content, you are still wearing the hairstyle and using the haircare products. However, if your hairstyles are a part of your brand, or a key part of your content, then you can deduct the costs.
For example, if you wear wigs when producing your OnlyFans content, then you can deduct the costs of buying, cleaning, styling, storing, shipping, and otherwise maintaining your wigs. In this instance, when your OnlyFans performance is over, you take the wig off and go back to your regular life.
Another example would be OnlyFans content creators who operate platforms focused on creating hairstyles, modeling hairstyles, or exhibiting different kinds of hairstyles. The contractors can deduct the costs of creating, maintaining, and purchasing the products required for the hairstyles used in their productions.
If any of this is something that you want to do, make sure that you keep the messages from your customers who have requested specific hairstyles, wigs, etc. They will help you to successfully argue that the hairstyling costs were part of your OnlyFans content production.
Normally, makeup is not an allowable business expense deduction. Makeup can often be used in your business and private life. If you are using your makeup or both, it is not tax-deductible. However, if you are running a makeup platform where you focus on making, applying, coordinating makeup (e.g., techniques, products, colors). Also, if the makeup you are using is extreme (e.g., clown makeup) and you would not wear it in your personal life, you can declare it as a business expense and deduct it.
Special Furniture, Decorations, Props
If you are providing niche content to your customers or exclusive productions to them, then you can deduct the costs of acquiring the items needed to do the performance. Some things that would be covered by these deductions are furniture from a specific era that you only use for work, toys, pictures, knick-knacks, etc., that you need to deliver the requested content.
Lighting equipment can make the difference between a so-so and amazing performance. If your lighting equipment is only used for your business or used in your business and other areas of your life, it can be deducted from your gross income as a business expense. The equipment fixtures, filters, etc., can be depreciated over time or using accelerated depreciation.
Whether you are editing your own videos or paying someone else to do it, you can deduct the costs of purchasing the software, equipment, and services of the people who assist you with the video editing.
OnlyFans content creators who are branding their content can deduct the costs of purchasing, developing, and maintaining their brands. The band must be associated with your business. In other words, you and your brand must be different. So, when you are not working or representing your business, you should not be using your branding outside your work. If this applies to you, the branding materials/supplies are tax-deductible.
OnlyFans content creators who create merchandise to promote or advertise their business can deduct the cost of merchandise. Moreover, if you are giving away gifts, prizes, discounts, coupons, etc., then you can deduct the cost of those things because they are business-related expenses.
As a business owner/operator, you can depreciate your assets over time. The claimed depreciation reduces your taxable income. One way to significantly reduce your taxable income is to use bonus depreciation. Bonus depreciation allows you to deduct 100% of the cost of an asset in the year in which it was purchased.
This type of depreciation can result in a net business loss. Fortunately, a business loss can be covered over years and used to reduce your tax burden in future tax years. Note, bonus depreciation also reduces your ability to reduce your future tax burden if there is no net loss. Carefully consider your financial situation and how you want to manage your business taxes in the future.
Any fees paid for professional services are tax-deductible. Professional services include legal, accounting, bookkeeping, video editing, photography, script writing, lighting, equipment repair, and business coaching. These services are part of operating your business, so they are allowable business expenses.
Start Up Costs
The IRS allows you to deduct a maximum of US$5,000 in startup costs. These costs can include traveling expenses, home business office costs, utilities, equipment costs, office supplies, special clothing, OnlyFans platform fees, OnlyFans platform payment processing fees, and advertising and marketing costs.
Qualified Business Income (QBI) Deduction
The Qualified Business Income (QBI) deduction can be used to deduct up to 20% of your QBI. To qualify for a QBI deduction, you must meet specific income requirements, have qualified business expenses, and have a pass-through business. QBI includes business-related expenses like self-employment taxes, self-employed health insurance, and contributions to retirement plans.
As an OnlyFans content creator, you can pay US$0 in taxes if you maximize your tax deductions and investments. If possible, you should incorporate your business into an LLC with C corporation tax treatment so that you can retain your corporate earnings and not pay taxes on them or have to spend all of it. Moreover, as an incorporated business, there are other expenses that you can claim to further lower your tax burden and defer payment of it.
Free Cash Flow Agency can advise you on how to depreciate your assets, carry business losses into future tax years, maximize your deductions, and properly document your expenses. If you truly want to payUS$0 in taxes, get the professional help you need to make it happen.