-1

In USA, for a YouTuber who earns US$60,000 per year for making Pokemon Go videos on YouTube and takes about 8 trips to Japan, Europe, Taiwan, Chicago, sometimes not because there is a Pokemon Go event, but just for showing users how it is to play Pokemon Go there, each trip can cost US$4,000. Eight trips is $32,000. Is this cost tax deductible?

On the other hand, if a person invests US$250,000 in smartphone stocks, and buys 3 to 4 smartphones each year (from Samsung, Google (Pixel), Oppo, Apple), and costs about $4000 to research which companies he should keep or should sell, is this $4,000 cost not tax deductible?

So $32,000 trip costs is tax-deductible, but the $4,000 research costs is not?

  • 6
    It's not clear whether maintaining this investment is the person's business, and that is key to the answer. – Ben Voigt Oct 17 at 20:56
  • 1
    your first point is kind of right, part of the trip would be deducted on US tax returns to the extent that part of the trip was spent as liesure the liesure portion is not a deduction. And the second part is kind of right but under the right circumstances phones can be business expenses. Ie a phone bought to put in a blender on youtube could be a business deduction to the youtuber as a production cost. – quid Oct 17 at 21:53
  • 1
    @nopole good question – Raj Oct 17 at 21:55
  • 1
    also it is strange as I heard a YouTuber's trip cost is tax deductible, but a trip to join an annual shareholder meeting is not. Especially, what if the YouTuber's yearly income is $60,000 and the investment gain is like $80,000 per year. (whether it is sold and taxed, I am not sure if that matters or not). I am not talking about me, but somebody's retirement investment fund can be $2 million, and the investment gain per year: $160,000, and the annual shareholder meeting trip, still not tax deductible? – nopole Oct 17 at 21:56
  • 4
    "but $4,000 research costs, not deductible?" What is this person's job? If it's making reports as a business comparing and contrasting smartphones, then it's deductible. If it's for yourself, then no, it's not deductible. – RonJohn Oct 17 at 22:00
9

I think you are confused about what the IRS considers a business or not.

The IRS has written on this issue regarding a person who makes investments for a living with Topic No. 429 Traders in Securities (Information for Form 1040 Filers) which classifies individuals as: Investors, Traders, and Dealers. Skipping Dealers as they have obvious customers,

So an Investor:

Investors typically buy and sell securities and expect income from dividends, interest, or capital appreciation. They buy and sell these securities and hold them for personal investment; they're not conducting a trade or business. Most investors are individuals and hold these securities for a substantial period of time. Sales of these securities result in capital gains and losses ...

Or a Trader:

Special rules apply if you're a trader in securities, in the business of buying and selling securities for your own account. The law considers this to be a business, even though a trader doesn't maintain an inventory and doesn't have customers. To be engaged in business as a trader in securities, you must meet all of the following conditions:

  • You must seek to profit from daily market movements in the prices of securities and not from dividends, interest, or capital appreciation;
  • Your activity must be substantial; and
  • You must carry on the activity with continuity and regularity.

The following facts and circumstances should be considered in determining if your activity is a securities trading business:

  • Typical holding periods for securities bought and sold;
  • The frequency and dollar amount of your trades during the year;
  • The extent to which you pursue the activity to produce income for a livelihood; and
  • The amount of time you devote to the activity.

If the nature of your trading activities doesn't qualify as a business, you're considered an investor and not a trader. It doesn't matter whether you call yourself a trader or a day trader, you're an investor. A taxpayer may be a trader in some securities and may hold other securities for investment.

So returning to your smartphone example, that $4000 in devices would be considered an Investor (research) expense, as you are buying the stocks for growth and income and not for daily movement.

Additionally as an Investor staring for the 2018 tax year you are no longer able to take the 2% Misc. Itemized Deduction, see IRS Pub 529 Miscellaneous Deductions. Note that even in prior tax years, the smartphone purchases would probably not have qualified as an investment management expense.

So the answer to your question:

So $32,000 trip costs is tax-deductible, but the $4,000 research costs is not?

is YES or at least the business part of the $32,000 trip is tax-deductible. As others mentioned, a YouTuber is either a self-employed entertainer or works for his/her entertainment company. The Google company, YouTube, submits a 1099 to the IRS for payments made to the entertainer (sole proprietor/corporate). That entertainer would need to declare all income like brand sponsorships, pay assorted payroll taxes, business expenses, etc and do so at sole proprietor / corporate tax rates. By being a business the entertainer is allowed to deduct business expenses.

The IRS doesn't consider an Investor a business. Investors' already have a lower capital gains tax rate compared with regular income and isn't subject to payroll taxes on those realized capital gain earnings.

And you sort of asked about real estate in the comments, the IRS has written about Rental Income as well in Topic No. 414 Rental Income and Expenses. So while you won't be paying payroll tax on the earned rental income there are still a number of business-like behavior you'll have to follow, like depreciation.

So a YouTuber is closer to traditional business than either an Investor or earning Rental Income as both have specific rules from the IRS.

Follow up to comments

But what about buying one smartphone per two years for your buy and sell of stocks? Then it is tax deductible for a trader but not for an investor?

As Traders report their business expenses on Form 1040, Schedule C, Profit and Loss from Business(Sole Proprietorship), yes a Trader would be able to deduct the portion of the smartphone cost used for business.

Then if you are into rental properties, then if you take a trip to Phoenix or Boston to see if you should buy a condo or house there as a rental property, then the costs of that trip are tax deductible?

Reminder, Individuals are not businesses. Individuals spend time researching lots of things which may or may not be of benefit: "visiting various houses before a purchase, comparing car prices, visits to private education facilities for children of special needs or religious beliefs, subscriptions for analysis of investment funds". All of this "research time or research resources" to my understanding is NOT deductible.

Once purchased/transacted certain items' on going cost do become deducible as per IRS rules. So to my understanding your "trip to Phoenix or Boston" would not be deducible as the property hasn't been purchased yet. However once bought, you can deduct the ordinary and necessary expenses for managing, conserving and maintaining your rental property. from What Deductions Can I Take as an Owner of Rental Property?

If you think my interpretation is in error please cite as I have done IRS documentation which differs.

  • so no matter a person is an investor or trader, buying several smartphones per year for $4000 for research purpose is not tax deductible? But what about buying one smartphone per two years for your buy and sell of stocks? Then it is tax deductible for a trader but not for an investor? Then if you are into rental properties, then if you take a trip to Phoenix or Boston to see if you should buy a condo or house there as a rental property, then the costs of that trip are tax deductible? – nopole Oct 21 at 9:17
  • 1
    I've answered your followup comment in my answer. Please cite IRS documentation as I have done if you are in disagreement. – Morrison Chang Oct 21 at 18:43
  • it is complicated... I would at first think that buying stocks and selling doesn't qualify, but it seems that as a trader, that can be a "business" and therefore have the research costs tax deductible? That is counter-intuitive, as (1) traders usually don't research like the investors do. and (2) in a way it promotes trading, which some would consider money losing action vs investing for the long term. – nopole Oct 22 at 5:07
  • Your point (2) is a value judgement, not an IRS specification. While there are a number of biases in the tax code (home ownership, education, etc.) your original question is a yes/no about current tax regulation for a specific situation. Again cite sections of IRS documentation where you feel my answer is in error. – Morrison Chang Oct 22 at 5:32

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.