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How are my Fiverr earnings taxed in the US?

taxhelp

By taxhelp
in Tips from Sellers

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taxhelp Newbie

taxhelp

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This quick explanation should help you determine what your taxable liability could be as well as help you price your gigs.



In the US, you are taxed on your earnings/income. That means that you are taxed on anything you earn minus expenses. So how does the IRS figure out what they’re going to tax you on? Let me show you.



For this example, we’ll assume that Fiverr is your only income and you’re single with no dependents. First let’s make a distinction between “earnings” and “income”. Earnings are anything Fiverr pays you(currently $4 out of every $5). Income is what you end up with after taking into account any expenses you had to incur in making the finished product. In my case, I pay for tax research material and Paypal charges me a fee every time I transfer money from Fiverr to PayPal. I know some Fiverrs have computer software they use for their gigs or raw materials used for physical products so they would count that as an expense.



So let’s start with how we figure out what we are going to be taxed on. Let’s say that I had 10 gigs all year long which means that Fiverr paid me $40 (10 gigs * $4 a gig=$40). I would start with that as my earnings. Some people would argue that you should put $50 instead since $50 was the total Fiverr charged the customer. However, you only receive $4 so your earnings are really just the $4. So now you have $40 earnings. To determine your profit you will subtract your expenses from your earnings. Let’s assume you had expenses of $5 for internet, $2 for software (related to the fiverr gig) and $1 for PayPal (Total $8). So you would get $40 - $8= $32. $32 would be your profit. The IRS will then tax you (depending on your income bracket) on those $32. Let’s say they tax you $2. Your NET PROFIT would be $30 ($32 -$2 tax).



This is general advise and guidelines that do not take into account your specific tax situation. You should consult with a trusted tax professional prior to making any decisions that may impact your taxable situation. Contact me for any clarification.

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babybear613 Newbie

babybear613

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Thank you for posting this! Especially with just having done taxes I was curious about how my fiverr profits factored in. Personally I didn’t make enough for it to really matter tax-wise but if in the future this becomes my main source of income (fingers crossed) this is a great resource. Thank you. I appreciate having the basic knowledge of what I’m getting into 🙂

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taxhelp Newbie

taxhelp

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Reply to @bigbadbilly: So in the US, as in various other countries, any income has to be taxed even on income from hobby, yard sales, and including bartering. So if you give someone an old pair of shoes in exchange for a drawing, there is actually a form (Form 1099-B) that would need to be filled out if this were the case.



Interestingly enough, in some cities you have to apply for a yard/garage sale permit and are limited in the number of times you can obtain one per month. They do this for various reasons including in part to prevent people from creating a business that can easily avoid taxation.

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