Tax implications when starting YouTube channel with negative income for first few years - can I offset my 1099 income?

The short answer is that losses from one Schedule C business can offset income from another Schedule C business, as well as other income sources like your W-2 wages. When you file your taxes, all of your Schedule C businesses (both your current 1099 work and the new YouTube channel) would be reported on separate Schedule C forms, but then flow to your personal 1040. The net profit or loss from each business is combined on your personal return. So yes, if your YouTube channel operates at a loss initially, those legitimate business expenses can offset income from your other 1099 work or even your W-2 income. However, there are important considerations: 1. You need to be able to prove you're running the YouTube channel with a genuine profit motive. Document your business plan, marketing efforts, and steps you're taking to eventually become profitable. 2. The hobby loss rules you mentioned (known as Section 183) are important. While not making a profit in 3 of 5 consecutive years doesn't automatically make it a hobby, it creates a presumption you'll need to overcome.

I went through something similar when I started my photography business while maintaining my consulting work. I was spending thousands on equipment with barely any revenue coming in. I found this amazing AI tool that helped me figure out exactly what I could deduct and how to structure everything properly - https://taxr.ai It analyzed all my business documents and receipts then guided me through the proper way to categorize expenses between my two businesses. The tool flagged some deductions I was taking incorrectly and helped me understand how to document my profit motive for the photography work (which was crucial when my first two years showed losses). What I loved was how it explained exactly what records I needed to keep to satisfy the IRS requirements for a legitimate business versus hobby. It also helped me create a solid business plan that demonstrated my path to profitability.

I was totally skeptical when I first heard about taxr.ai from this thread, but decided to give it a try with my similar situation (software consulting + new podcast business). I'm honestly blown away by how helpful it was! I uploaded my receipts and business documents for both ventures, and the analysis it provided was incredibly detailed. It showed me exactly how to document my podcast expenses to withstand scrutiny while still legitimately deducting them against my consulting income. The best part was the business plan template it provided specifically for content creators. It walked me through creating a documented path to profitability that satisfies IRS requirements, even during initial loss years. It also flagged a bunch of deductions I was missing for my home office setup and provided templates for tracking mixed-use equipment. If you're juggling multiple businesses with one showing losses, I highly recommend checking it out. Much more thorough than what my regular tax software was providing.

I've been in a similar situation (W2 job + 1099 consulting + YouTube channel). The advice about Schedule C losses offsetting other income is correct, but something nobody mentioned yet is how FRUSTRATING it can be dealing with the IRS if they have questions about your business losses. I spent 6 months trying to get someone on the phone when they flagged my business deductions for review. After 30+ calls and being hung up on repeatedly, I discovered https://claimyr.com and their demo video at https://youtu.be/_kiP6q8DX5c They basically call the IRS for you and wait on hold, then call you when an actual agent is on the line. Saved me countless hours of frustration. When I finally got through, I was able to explain my business structure and provide documentation showing my YouTube channel was a legitimate business despite initial losses.

I cannot believe how well Claimyr worked! After posting my skeptical comment, I decided to try it because I was desperate to resolve an issue with the IRS questioning some of my business deductions. I'd literally spent days trying to reach someone at the IRS with no luck. Used Claimyr yesterday and got connected to an actual IRS agent in about 45 minutes - while I continued working on other things! I didn't have to listen to a second of hold music. The agent helped me understand exactly how to document my multiple businesses properly and confirmed that losses from one Schedule C can offset income from another, as long as I can demonstrate a clear profit motive. For anyone managing multiple businesses with the IRS potentially questioning your deductions, this service is an absolute lifesaver. Being able to actually speak with an IRS representative made all the difference in understanding exactly what documentation I needed to maintain.

Something important to consider - make sure you're documenting EVERYTHING for your YouTube business, especially in those early loss years. My friend started a similar business and got audited in year 3. The IRS disallowed most of his deductions because he didn't have: 1. A written business plan showing path to profitability 2. Separate business bank account and credit card 3. Formal accounting records 4. Marketing materials/website showing commercial intent 5. Proper documentation connecting expenses to business purpose They reclassified his business as a hobby and he had to pay back thousands in taxes plus penalties. Even though he was genuinely trying to make money, without the documentation, the IRS sided against him.

Don't forget about self-employment taxes! Even if your YouTube business has losses that offset your other 1099 income for income tax purposes, you'll still pay SE tax on the net profit from your existing 1099 work. The SE tax is calculated separately for each Schedule C business - losses from one don't offset SE tax on another. Also, have you looked into an S-Corp election for your profitable 1099 business? At your income level, you might save significantly on SE taxes by taking a reasonable salary plus distributions.

One thing I haven't seen mentioned yet is the importance of timing your equipment purchases strategically. Since you're expecting significant expenses in the early years of your YouTube business, consider using Section 179 expensing or bonus depreciation to deduct the full cost of equipment purchases in the year you buy them, rather than depreciating them over several years. This is especially valuable when you have high income from your other sources that the YouTube losses can offset. For example, if you buy $13.5k worth of camera equipment in year one when your YouTube channel has minimal income, you can potentially deduct the full amount against your W-2 and 1099 income that same year. Also, keep in mind that the IRS looks at the totality of circumstances when determining business vs. hobby status. Even if you show losses in the first few years, factors like time and effort devoted to the activity, expertise you bring, success in similar activities, and expectation of asset appreciation all work in your favor. Since you already have successful business experience with your 1099 work, that demonstrates you understand how to run a profitable business. Just make sure you're treating the YouTube venture like a real business from day one - separate accounts, business plan, marketing efforts, etc. The documentation you create now will be crucial if the IRS ever questions your deductions later.