welcome back to money and life TV my name is Mike the CPA you all know my
sidekick chipper yes saya act you'll service
what is up my YouTube family it is so good to see all of you once again I love
hanging out with you guys on YouTube talking to you on YouTube answering your
questions etc and at this moment in time this channel has officially broke 1800
subscribers thanks to all of you thank you for all of your support and the
channel has now surpassed the total channel view mark of over 100,000 views!
so I just can't thank you guys enough for all of your support just for
watching my videos and supporting this channel it means a lot to me because I
put a lot of time and effort into the videos I produce here now today I'm
really excited about this topic and this is actually a subscriber requested topic
that's right you guys have requested it and the specific scriber who has
requested it I need to give a shout out to her her name is Lena and she has a
channel called stay true vlog and I would highly or strongly encourage you
guys to go check out that channel Lena makes videos that cover money budgeting
how'd it like teach your kids about money videos like that also videos that
help teach us how to live more positive and happier life so I really enjoy
watching her videos and I think you guys will as well so make sure when you get a
chance head on over to her channel and check out some of her content and Lena
thank you for suggesting this topic because we're gonna be talking about
that I should say this is launching of series of videos about how to how taxes
work for YouTube for most of us YouTube is just a hobby right
some people just post a few videos here and there and that's yet they never
really do anything with it however there's a portion of people and creators
on YouTube who actually want to run YouTube like the business it can be and
of course when you have a business there's tax implications right
especially as we start as a channel start to make money
there's income to report on our tax return
there's expenses we may be able to deduct on our tax return to offset that
come we're making from YouTube sponsorships product sells whatever I
don't know about you guys but I've always learned best when things are
broken down for me in small bite-size chunks and so I'm gonna be like I said
I'll be producing a series of videos around this concept of YouTube and taxes
and just so you guys know even if you don't have a YouTube channel and what
you know if you have a other small business of some kind then these rules
and law tax laws are gonna apply in pretty much the exact same way so
whether you have a different kind of business or you have a YouTube channel
the rules are pretty much the same and so in this video in particular we're
gonna be talking about startup cost hey what better way to start a series then
with startup cost yeah see what I did there
you know these videos are meant to educate you and to help you better
understand the tax laws and how they work so that when you sit down to do
your own taxes or if you have somebody else doing your taxes such as an
enrolled agent our CPA you're gonna have a broader and better understanding of
what's going on because as you guys know it's a when it comes to money guys are
in things related to money you truly are responsible for knowing that better than
anybody that some nobody can treat your tax situation your money etc better than
you can so it's very important that we're knowledgeable about this stuff
before we start talking about startup cost in my hand I'm holding a word
document that I've put together from various materials and resources and
you're gonna be able to find this document in the description section of
this video so make sure you go down there and check it out you can download
it through Dropbox and if you have any trouble accessing this just let me know
and I'll see if I can get it to you via email or another way I've taken a lot of
time to really put this document together for you guys so I hope you hope
you enjoy it I hope you get something out of it I really think you will and I
do encourage you to watch this whole video from start to finish
cuz I'll be showing some examples of amortization and other things later in
this video let's go ahead and dive into startup cost folks the first thing is
well what are startup cost what officially counts as startup cost well
let me just read this off to you and then we'll look I'll show you guys
on-screen so startup cost our expenses and cost you and I incur
the process of opening a new business or the costs associated with acquiring an
existing active business so if we think of you know think of a restaurant for
example right think of like McDonald's so let's pretend what we're gonna open
McDonald's well we have to have we have to buy the land or at least lease the
property or construct the building we have to install tables into that
restaurant we have all these things we have to do before we can ever open up
that business to customers now let's relate this back to or to
youtube channels because I'm making this video like I said this is all
information for small businesses of any kind but I want to tailor it to be
youtube channel specific so think of your YouTube channel like a business
alright think of all the things you have to do before you can ever post your
first YouTube video before viewers can ever come and see a video on your
channel so for myself for example you know I went out and I bought a now
different people are gonna buy different things right but for the kind of videos
I want to produce I ended up needed to go out to buy a new computer I bought a
cyber gaming PC because I knew it could do video editing I also wanted to have a
laptop that could do the same thing so I bought an MSI laptop and so on then I
also have to buy lighting equipment you know I could buy camera equipment and
you can obviously spend as much money as you want
but these are all the things I had to purchase in order before I could ever
post my first video on YouTube so those are the expenses I'm talking about
things you buy are you finding to be necessary in order for you to post your
first video and start that whole channel up okay and you might have to start a
website it all depends on what you're trying to do with your channel and where
you're trying to go with it but think be thinking of those things of what you
need to start your YouTube channel so startup costs are gonna vary drastically
for each type of business especially for YouTube I've also thrown in some of the
legal tax jargon into this so that you have a much broader understanding
probably more than you need but I want you guys to have a broader and more
in-depth understanding of this stuff so you truly know how to apply it to your
specific tax situation so a section for tax purposes section 195 defines startup
cost as cost incurred to investigate the potential of cost of creating or
acquiring an act of business and to create an active or
to create an active business to qualify as startup cost the cost must be ones
that could be deducted as business expenses if incurred by an existing
active business and must be incurred before the active business begins so
basically what they're saying guys is this these are the costs that must be
incurred ok and if you don't if you and I if we go and incur these costs and
then we never do anything for it we never start a business we never
launched our YouTube channel well then you're not going to be able to deduct
those because you have to have a legitimate business purpose for
deducting those expenses otherwise if not then what are they their personal
expenses if if we're not going to treat this as a business then all of those all
that money we just dished out becomes personal and we can not deduct it on our
tax return so keep that in mind so let's look at a few examples of startup costs
for a traditional business and I'm my traditional I basically mean like
brick-and-mortar kind of business then we're gonna look at specific examples of
YouTube channel like expenses that you might need to incur so for a traditional
business guys you know you might think of an analysis or survey of potential
markets products labor supply transportation facilities etc
advertisements for opening a business salaries and wages for employees that
you have to train or instruct you travel or other necessary cost that you might
have to incur before you can get your business off the ground and you also
might need to pay salaries and fees of brand consultants to help you start your
business right you might have to hire accountants attorneys things like that
to help you get your business started now for YouTube channels like probably
99% of them or more you're not gonna have to incur those costs right that's
the cost for like a brick-and-mortar kind of business and usually you know
hundreds of thousands of dollars of expenses go into opening those kinds of
establishments but for YouTube channel you can get off the ground for dirt
cheap probably even less than a thousand bucks you can start a YouTube channel
if you really wanted to there's tons of videos out there just so you guys know
that you can find and use the most basic equipment to get started so you don't
have to spend a lot of money to start a YouTube channel but now let's look at
some of the expenses if we have a youtube channel that might
be considered startup costs okay going down the list here we have a camera
equipment computer these are things I mentioned just a little bit ago a video
editing software in case you guys were wondering I use Vegas Pro editing
software for my videos but other kinds of software packages would count as well
depending on what you're using it for as long as you're using it for your YouTube
channel and your YouTube videos then I would in my opinion that would be part
of your startup cost to help get you off the ground other things too buddy so
like that's an application that runs in the background of YouTube vid IQ these
are things I personally use to help manage my YouTube channel and help give
me a better picture of my analytics what kind of search tags to use etc and then
the last but not least I mean if you wanted to go really in detail you can do
consulting you could pay for a consultant right to help you get off the
ground there's people on YouTube who actually do that to specifically focus
on consulting helping other people to creators get their channel off the
ground you can pay for advertisements things like that so those are some
examples of startup cost so guys when we think of startup cost just remember just
think of all the expenses you might have to incur in order for you to launch your
YouTube channel okay it's as simple as that and it has a CPA I have to tell you
guys remember it is always and I mean always guys your responsibility it's our
responsibility to maintain proper receipts and records for any of the
expenses of the start-up costs that we're incurring so if you do not have
receipts for it for these kind of things and you and I get audited worse we're
out of luck we're gonna be in hot water because we're not gonna be able to prove
that we actually spent that money so make sure this along this hallway that
you're keeping track of your expenses for your YouTube channel
okay so we just looked at what startup costs are deductible now let's talk
about what startup costs are non-deductible things like this so we
have deductible interest so if you have interest that you incurred in order to
get these suspend this money for these startup costs it's not deductible taxes
if you for any reason if you pay like sales taxes and things like that not
deductible research and experimental costs are not part of start-up cost now
it doesn't mean you can't deduct it there's actually a lot of rules very
specific rules for start-up cost and research expenses but usually
research costs are capitalized and I'm gonna include a link to the publication
on this and generally you'll see as they wrote here in the document the research
costs are generally amortized but see IRS Publication 535 chapter 7 for more
detail on this because there's pages and pages and pages of information on
research cost and experimental research cost so just keep that in mind alright
so we've been going along this video he's talking about some examples for
your YouTube channel and startup cost of what you can adduct
but is there a limit to how much startup cost that the IRS will allow you to
deduct and the answer is yes so the weight startup cost deductions work is
we're only allowed to deduct $5,000 of our startup cost expenses up to the
amount of $50,000
now Mike you just said that I can only deduct five thousand up to five thousand
dollars of my startup expenses well what about the rest what if I spent like
thirty five thousand dollars or something getting my business off the
ground in order to get started well don't worry you're not out of luck
because the remainder of that can be capitalized and I've included in the
word document that you guys to download a step-by-step example of the concept of
how that actually works with amortization rules etc but let's go
ahead and let's take a moment and let's walk through an amortization breakdown
on screen for you guys so you have a better understanding okay let's look at
an example on screen so let's say we have $35,000 of startup costs and
hopefully you guys can see this so of the 35,000 we know we can deduct 5,000
of that right so that's gonna leave us so we're gonna subtract 5,000 from this
so now we have $30,000 of remaining startup cost this is the remaining
$30,000 we need to amortize because the IRS does not allow us to expense this
all at once on our tax return so amortization rules state for start-up
cost that we have to amortize this over a period of 15 years and in case you're
wondering 15 years is 180 months so from an amortization perspective this is how
it's gonna work so now we're gonna take our 30,000 dollars I just mentioned and
we're going to divide it by 180 months because we would have to expense this
over that time period so 180 our 30,000 divided by 180 is basically a hundred
and sixty six dollars per month it's like a hundred sixty six dollars one
hundred and sixty-seven dollars per month so basically every month that your
business is open you get an amortization expense of that much per month and it
keeps going on and on and on until the fifteen years has passed then that full
thirty thousand dollars of start-up cost will be expensed at that point in case
you're wondering how this plays out if you were to open your YouTube channel
let's pretend on the very first of the year so January 1st of 2018 the way that
would mathematically compute is we would get our $5,000 deduction of startup cost
right we can deduct the 5,000 and we would get
an amber nation expense deduction of $2,000 which
is the way that's calculated is we know we can get 166 dollars basically per
month right of amortization expense so now we just multiply this by twelve
months so this amount times twelve roughly gets us and I'm just rounding
here guys just for simplification purposes and you're gonna see this
example in the word document I've provided you but that's gonna get you a
total amortization deduction of two thousand dollars okay so your total
amortization expense deduction is two thousand so you have your five thousand
dollars of start-up cost and we have our two thousand dollars of amortization
expense so we have a seven thousand dollar tax deduction right there I
wouldn't that I went over that kind of fast without going into crazy amounts of
detail of all the amortization rules which I don't want to get into but
that's essentially how this works if you guys have questions comments please feel
free to drop them in the comment section down below especially if I lost you at
some point which is highly possible because tax is not the easiest concept
to teach but hopefully you guys were able to follow that but I'm happy to
answer any questions you may have in the comment section below so we've looked at
what our startup cost we've looked at examples of startup costs of our youtube
channel and now we've looked at how amortization works and how
mathematically it all plays out but now where do we actually deduct it for tax
purposes well I miss in this video I'm assuming that you do not you have not
formed an LLC a corporation an S corporation or any other kind of
business entity so if your if you did not legally form an organization with an
attorney then that's not going to be a case for you and that's probably gonna
be the case for the majority of you when you're first starting your Tube channel
there's probably no need for you to incorporate right away at least I have
not at this point because I'm just getting started
once you make start making hundreds of thousands of dollars or more if that
ever happens well then I think you have a reason to actually form a legitimate
business for your youtube inity but until then you're fine running it as
like a sole proprietor which is this tax form Schedule C Schedule C tax form is
part of the 1040 tax forms and so I'm going to show you an example on screen I
actually got this from another website so check it out and it shows you roughly
where you might report this star at least $5,000 in
deductible startup cost on your return now amortization expense is going to be
placed on a depreciation schedule within your tax program or tax software so make
sure to to know that's where that goes and then that software should transfer
that expense amount to a line item on tax form Schedule C now like I said I'm
not here to tell you how to file your taxes that is not what this video is
intended to do but that is essentially how it works okay guys that is all the
information I have for you today hopefully I've been able to explain
startup costs in a way that makes sense to you let me know how I did I hope I
hope you were able to follow that coming up in feature videos for this series
I'll be showing you how to easily track your expenses with Microsoft Excel and
it can also recommend some software packages you use if you want to use
software beyond just a normal spreadsheet we'll be looking at
understanding tax form Schedule C will look about how if you were to receive
income from Google which is Google owns YouTube in case you guys didn't know
we'll talk about how that income is actually deposited to your account and
what how that's reported to you in order for you to report it on your tax return
so we're gonna be going over a lot of different concepts as we go down this
path so just you want to definitely if you want to learn more about taxes more
about finances more about investing then I would highly suggest that you guys
subscribe to our channel I go I work really hard to produce these videos and
make them as detailed as possible like I said I have the handout for you in the
download section down below so make sure to download that read it over and that's
gonna really help you understand everything we just talked about in the
video and there's tons of links in there for you guys to show you where exactly I
got all this information and where you can learn more about this for yourself
because the more we know about our tax situation not only it's going to help us
better from a global perspective when it comes to our money and finances but also
for how you want to run your YouTube channel because your YouTube channel if
you use it right can definitely grow into a business model and in fact it can
grow into a very profitable business model depending on how you want to use
it and grow it it's totally up to you alright guys thank you so much for
taking time out of your watch this video chipper and I love
hanging out here with you on YouTube I hope you guys have a fantastic week let
me know if you want to see more content like this
once again Leena of stay true vlog thank you so much for suggesting this topic I
had a lot of fun kicking off this series and I can't wait to make more videos in
this area and just remember this is not only the rules for YouTube but just for
small businesses in general the rules are the same different businesses deduct
different things but overall the rules are pretty similar for each kind of
business so that's why I think this would apply to any almost any business
you're thinking of starting all right guys like I said thank you for your time
today and I had a lot of fun making this and I hope to see you in the next video
love y'all bye guys peace