Setting up an OnlyFans account can be an excellent alternative for independent content creators seeking to monetize their talent and connect directly with their audiences. However, this decision involves several tax implications that are often ignored.
In this article, you will discover whether OnlyFans’ income is legal.
Is OnlyFans Legal Income? – The Verdict
The Internal Revenue Service (IRS) treats OnlyFans income as any other type of income for tax purposes. Hence, the proceeds from an OnlyFans account are legal. It is fundamental to understand that this form of self-employment income is not considered a wage.
Accordingly, OnlyFans account owners must pay income and self-employment taxes on the amount received. The income taxes applied are the same associated with standard 9-to=5 jobs. Conversely, self-employment taxes require extra attention to detail.
Is OnlyFans Legal Income? – Tax Implications
Owning an income-generating account on OnlyFans does not make you an employee of the website. Instead, the owner of the account is treated as a business owner. Hence, any income generated on OnlyFans will be subject to ordinary taxes and self-employment taxes.
The tax rate applied in these cases currently ranges around 15.3% of the total amount received on OnlyFans. The IRS allows content creators to choose between different options to file their taxes.
The first option is to file tax returns as a sole proprietorship. In such cases, the account owner can report federal income taxes and self-employment taxes. It is possible to deduct expenses that are essential to the business when filing the forms.
Another option for filing tax returns is to register the OnlyFans account as a limited liability company (LLC). As its name suggests, an LLC is a separate business entity from its owner (member), which shields him or her against business liabilities and vice-versa.
Registering an OnlyFans account as an LLC offers protection if an unexpected liability arises. For example, if someone decides to sue an OnlyFans account registered as an LLC, the content creator’s asset will not be subject to business liability.
A highly sought-after benefit available for LLCs is “pass-through” taxation. In such cases, the income generated by OnlyFans LLC is taxed only at the persona level, as the content creator is not required to pay corporate federal income taxes.
All the income generated by the OnlyFans account passes through the LLC and goes directly to the content creator, which must file individual tax returns with IRS. This option avoids double taxation, which provides an advantage in comparison with sole proprietorships.
LLCs also enjoy superior flexibility when filing taxes, as they can opt for S-corporation status.
The tax implications for S-corps have their share of benefits, as the content creator does not need to apply the self-employment tax and only pay the regular tax that he or she would be subject to as any corporate employee.
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