Tik Tok users are earning big money. That has tax implications
Tax season is here. Before you submit your returns, you may want to ask your clients a few questions about their earnings on Tik Tok.
With the explosion of Tik Tok, many people might not be aware that you can make money on this app. Many parents might also be surprised that their kids make money on this platform.
Before I get started, I want to provide a quick summary of what this app does.
Essentially, Tik Tok is a video platform where people can lip sync, make original content, dance, create text, and use visual effects to entertain followers. It uses a hashtag system similar to Instagram and Twitter, but the algorithm is different than any other platform. You also have the ability to:
- Direct message profiles.
- Share videos with other profiles.
- Download videos from TikTok and upload them to another platform.
How do people make money on this app?
I would say it’s simple, but it’s not so simple that everyone can do it. Still, you’d be surprised how many people are monetizing their profiles on this app. A lot of them are kids who have no idea about the tax implications related to what they are doing.
Tik Tok has its own in-app currency that can then be exchanged for money payouts. Many people don’t know that “pandas,” “sun cream,” “rainbow pukes,” and “drama queens” are just a few of the gifts that can be given to creators on Tik Tok. It doesn’t sound like a big deal, but more and more people are jumping on the Tik Tok bandwagon and earning more gifts that are being cashed out for money.
The gift exchange within the Tik Tok platform is somewhat complex, but here it is in a nutshell: You can convert gifts into money and transfer it to your bank account once you have $100 worth of gifts after the exchange conversion. The maximum transfer amount at any particular time is $1,000 after the conversion.
Were you surprised that people could earn that much on an app that’s filled with people dancing and lip syncing?
Well, hold onto your hat, because people are actually earning more. And they’re teenagers. And dogs.
As of January 2020, Jiff Pom (@jiffpom), a tiny Pomeranian puppy, has 20.5 million followers on his account.
At 17 years old, Loren Gray has 37.1 million followers on Tik Tok.
What does that mean in terms of revenue?
You can only receive gifts on live streams, and you must have at least 1,000 followers. After one goes through all of the gift conversions from followers on live streams, creators like the ones above can easily earn anywhere from $5,000 to an estimated $25,000 per live stream, based on the number of gifts viewers have given them in past broadcasts.
Why does this matter?
Not many people treat money earned on social platforms as income. Most of the people who earned money are teenagers and might not know that they have to pay taxes on the money earned.
Just a little food for thought on social platforms and the business they have become in a short period of time.