Tax tips for TikTok stars, after judge says influencer can't write off his Grammy tickets

By Andrew Keshner

3 tax pitfalls for 'influencers' - and tips to avoid them that could help all taxpayers

Tax courts are now full of cases where younger taxpayers are fighting IRS decisions related to the money they made creating content online.

The IRS is starting to catch up with the taxes of influencers and content creators.

Social media has been a booming business for years, but a new court decision marked a first when it comes to how professional influencers on sites like TikTok, Instagram and X pay their taxes.

Last week, a U.S. Tax Court judge rejected an influencer's bid to write off what he paid for Grammy tickets, Emmy tickets and meet-and-greets with A-list names.

Though the influencer, Suleiman Sami, presented the money he spent as a deductible "marketing expenses," the judge wasn't convinced Sami was doing it for business - even if the resulting celebrity-filled photos and posts helped his follower count. The IRS said Sami was on the hook for a tax bill that included more than $25,000 in penalties.

Sami is an IT manager, chauffeur and ticket reseller in addition to his social-media-influencer aspirations, which seem to be built around his proximity to famous faces.

From 2019 to 2021, Sami paid for tickets to high-profile events and photo opportunities with the likes of actors Matt Damon and Benedict Cumberbatch. He also paid to catch passes from NFL quarterbacks Tom Brady and Drew Brees, and to return a serve from tennis legend John McEnroe.

Sami dropped Brady's pass, caught Brees's throw and was "basically destroyed" by McEnroe, he said, according to the court decision. His social-media accounts also include many up-close photos and videos at WWE events.

Tax Court Judge Elizabeth Copeland said Sami wasn't entitled to deduct those expenses from his taxable income. Her impression was that Sami's "motives for buying these experiences were primarily personal, rather than hard-headed business ones."

The U.S. Tax Court, which weighs in on disputes between taxpayers and the IRS, routinely issues decisions about when businesses are allowed to deduct expenses that also happen to seem like a lot of fun. Sami's case was the first time the court ruled on when social-media influencers could take the write-off, according to Copeland. But it won't be the last.

Tax courts are now full of cases where younger taxpayers are fighting IRS decisions related to the money they made creating content online, according to Sami's lead lawyer, Frank Agostino.

Sami's case is "one of what's going to be a floodgate of people," Agostino said. "This is their livelihood."

Sami and his lawyers are still deciding whether to appeal the ruling, which Agostino views as a "split decision," he said. For instance, the decision allowed Sami to keep certain write-offs, such as most of his car expenses for a chauffeuring service he owns.

The decision comes as social-media content creation has become an attractive career route. More than four in 10 Gen Z adults, 44%, say either full-time or part-time content creation is the ideal career, according to a Morning Consult survey.

This case - and the many pending ones behind it - are growing pains for a generation that will profit from social media's rise, as Agostino sees it. "Nobody teaches you in school the business of being an influencer," he said. "This case is a lesson on financial literacy."

Here are some of the tax pitfalls that social-media influencers should watch out for:

Not every expense is a write-off

The IRS lets entrepreneurs and companies deduct their "ordinary and necessary" expenses to build their businesses. Though influencers can turn their everyday lives into their business, experts say there's a limit on what counts as a deduction.

"Just calling yourself a content creator doesn't give you a get-out-of-jail-free card to deduct everything in your life," said Jason Moll, a Nashville, Tenn.-based business manager and tax adviser for artists, athletes and content creators.

At the same time, it "doesn't mean you can't incur business expenses that you enjoy," he added.

To be deductible, the primary purpose of the expense has to be business-related, Copeland wrote. That's why past rulings said one plywood manufacturer couldn't write off Super Bowl tickets but a struggling fashion designer could deduct the costs incurred with a local television appearance.

So what counts as ordinary and necessary for influencers?

Moll said he makes his clients view the question this way: "Is this something that will help me do my job better or lead to more revenue?" Likewise, Moll said he has them consider whether the expense is something another content creator in their shoes would do as well.

Every person's situation is unique, and the influencer business is new and highly personal, Moll said. Just because Sami's meet-and-greet expenses didn't result in deductions on his taxes, Moll said it doesn't necessarily mean the IRS wouldn't allow it elsewhere.

Not understanding the tax rules around startup costs

Sami now makes around $25,000 a year from his posts on TikTok and Instagram, according to court documents. But he didn't make any money from his posts in the tax years under the judge's microscope.

Copeland said "the most promising way" the payments for celebrity photos and interactions could be viewed as business expenses would be if they were considered part of the startup money that would later turn into social-media advertising revenue. Startup costs have their own specialized tax rules, she noted.

That could be a tip for future cases involving influencers, Agostino said. "Even in the parts of it that are a loss, the judge went out of the way to write it in a way that is guidance," he said of Copeland's decision.

Generally, a business with low startup costs can deduct $5,000 during the business's first year. For startup costs well beyond $50,000, there's no immediate deduction, but the costs can be deducted over 15 years.

The first year a business is operational and active is the first year the taxpayer can take the deductions, Moll said. Except it can be tricky determining when an influencer's business is up and active for tax purposes. Is it when followers pile in? When advertising money arrives?

There's no one answer, Moll said. He tells his clients to think about the difference between the money spent launching themselves and the money coming back as a result. "The bigger the spread, the harder it's going to be to prove that those expenses were primarily for business," Moll said.

Not keeping good records

Throughout the decision, Copeland took issue with some of Sami's tax records - even though he has a degree in accounting, she noted.

While his trip records showed that Sami's car costs were eligible to be deducted, there was no way Sami could show his payments to hobnob at high-profile events increased ticket sales for his related concierge business, because he had no written evidence of ticket sales.

"It all comes down to financial literacy and recordkeeping," Agostino said.

Written records in the moment are critical, Moll said.

"Rather than just spending money on whatever and trying to figure out deductions after the fact, it's going through each expense and making sure you have a written, dated statement of the purchase and how you expect it to serve business revenue."

Records are no guarantee, especially in a developing field like taxes for influencers. So keep good records in case the tax man comes knocking, said Moll, "and hope the auditor or the judge agrees."

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-Andrew Keshner

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