This topic came to me by way of my podcasting co-host, Joe Cassandra. He sent me a text one morning asking, “Are our podcasting expenses tax deductible?”
Unfortunately, the answer to this question is anything but simple. Though my space is limited, I want to simplify things to point you in the right direction to determine if you should get in touch with your tax professional. Taxes are tricky, and anytime you do something outside of the norm, I always strongly recommend consulting with a specialist.
Where do I start?
You need to determine if your podcast is a business or a hobby. The first question you must ask, preferably from the perspective of the IRS, is:
Is my podcast a for-profit endeavor?
I know many podcasters dream of getting big sponsorship deals with the usual suspects we hear sponsoring the big name shows. Because of this, most of us would answer that we are indeed out to make a profit from our podcasts. But remember, I said to ask the question from the perspective of the IRS.
The IRS states:
Taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. Trade or business activities and activities engaged in for the production of income are activities engaged in for profit.
Let me clear up the above ambiguity with some things that might help you decide if, in the IRS’s eyes, you are running a business or just participating in a hobby.
Narrowing Your Focus
There are a few things that can help qualify your podcast as a business, giving you an argument for deducting any and all podcasting-related expenses on your tax return.
Does your time and effort indicate intention to make a profit?
If you’re a podcaster who likes to jump on your laptop mic after every episode of How I Met Your Mother and ramble your thoughts about Barney’s latest escapade, but have nothing substantial to offer in terms of generating an income, chances are you do not have a business.
However, if you have a professional setup, spend time in pre and post production, and devote hours on your show notes and show promotion in an effort to appeal to willing sponsors, then it is reasonable to say you are striving to make a profit.
Have you changed methods of operating your podcast to improve profitability?
I know of many podcasters who get 10, 20, or maybe 50 listeners per episode, who are okay with those numbers and continue to do things the way they have always done. While staying true to your colors might produce a product you are proud of, the IRS would probably say you’re not intending to make a profit.
On the other hand, if you are tracking your downloads, testing different format tweaks, and gathering listener feedback in an attempt to improve those numbers, then there is evidence that you’re trying to improve your show’s profitability.
Do you have the knowledge needed to carry on the podcast as a successful business?
Admit it. We have all stumbled on a random podcast that piqued our interest so that we gave it a listen, just to find out it was by some lunatic who had no idea what he was talking about. This might be entertaining, but would the IRS listen to it and decide that this person is knowledgeable enough to make a business out of it? I doubt it.
If you have a specialized skill or valuable knowledge that translates into a podcast of radio quality to the untrained ear, then you might have a good argument.
I Answered No. Do I Have Any Hope?
One thing that I need to make clear is that revenue alone does not automatically make the podcast a business. The IRS’ specific wording is “for-profit,” not “for revenue.” If you’re earning income, but you do not think you’d be viewed as a business, then the IRS would argue that you have a hobby that happens to be generating revenue.
If you are in this situation, don’t despair. First, you’re doing better than most by earning revenue at all. Secondly, you still might be able to deduct those expenses! The IRS only allows hobbyists to deduct expenses up to the amount of revenue earned. If you fit certain criteria, you will be able to write off enough so that you won’t have to pay taxes on your podcasting income.
No Business? No Revenue?
The last scenario, which unfortunately is for the majority of podcasters, is in participating in a hobby that is not generating revenue. If this is you, then nothing can be done with your expenses except admiring the finished product those expenses created.
Clearly, this is a topic that should be discussed with your tax professional before you pull the trigger on deducting expenses. Hopefully I was able to shed a little more light on some ways to deduct expenses, if at all possible.