How to file taxes as a U.S.-based online course creator

If you’re an online course creator, filing taxes can feel like a complex maze. However, knowing the rules and staying tax compliant is key to growing your business. In this blog post, we'll walk you through the tax filing essentials for U.S.-based course creators: calculating income and self-employment tax, understanding state sales taxes and economic nexus, and making the most of deductions. Our simple and jargon-free guide will help you understand every regulation clearly. 

Who is this guide for?

1. This guide is for U.S.-based coaches and trainers selling digital products, such as online courses and workshops.  
2. Those running their business independently, not through marketplaces like Udemy or Coursera.
3. Those hosting and selling courses on their own website or using online course platforms like TrainerCentral or Teachable.

Federal taxes

All U.S.-based online course creators are considered self-employed in the eyes of the IRS. In tax terms, this means you're responsible for reporting and paying taxes on your worldwide income. This includes sales from digital products like courses, ebooks, templates, and memberships. 

What type of federal taxes do course creators owe?

As a self-employed individual, course creators generally owe two types of federal taxes.

Federal income tax

U.S. federal income tax is calculated based on your total income in a financial year. Based on the bracket, the tax amount is calculated. The tax percentage ranges from 10% to 37% depending on your total income.

Self-employment tax

In addition to federal income tax, online creators are also liable for self-employment tax, which is a flat 15.3% (12.4% Social Security + 2.9% Medicare) of their net earnings.

In general cases, employers typically pay half of these taxes (7.65%), while the other half is borne by the employees. But because you're both the employer and an employee, you're allowed to deduct the employer's half (7.65%) and adjust it in your annual gross income.

For example, let's say your gross earning is $50,000. Now, you owe $7,650 (15.3%) as self-employment tax; however, you can deduct half of this ($3,825) when calculating your federal taxable income. This doesn’t directly reduce the self-employment tax you pay, but it lowers your total earned income used to calculate your federal income tax. 

Important note: According to the IRS website, the employer contribution adjustments in self-employment tax calculations does not reduce your net income directly. It reduces your taxable income for federal income tax purposes only. You are supposed to pay self-employment tax on the full net income.

When to file taxes: quarterly or annually?

If you owe $1,000 or more in federal income tax (after deducting credits and withholdings) then you need to pay quarterly estimated taxes using Form 1040-ES. 

You're not required to pay quarterly if:

1. Your total tax owed is under $1,000.
2. You have another job where taxes are withheld (like a W-2 employment).

Quarterly payment deadlines

• April 15
• June 15
• September 15
• January 15 (of the following year)

Failing to file and pay taxes on time may result in penalties and interest, so be sure to plan your taxes well in advance.

Note: Estimated tax payments include both income tax and self-employment tax. Many creators assume quarterly payments only cover income tax, which is not the case.

State income taxes

In addition to federal taxes, course creators also owe state income taxes. The tax rules differ widely based on the creator's state of residence, so it’s important to understand the rules based on where you live.

1. States with no income tax

Some states don't charge state income tax, meaning you'll only pay federal taxes. This simplifies tax calculations if you’re a digital creator.

Examples: Texas, Florida, Washington, Nevada, Wyoming, South Dakota, Alaska, New Hampshire, and Tennessee 

Scenario: Let's say you're a course creator living in Texas and earn $60,000/year through online course sales. You'll only pay federal income tax and self-employment tax because there's no state tax.

2. States with a flat income tax

There are some states that levy a fixed percentage of your income regardless of how much you earn. 

Examples: Colorado (4.4%), Illinois (4.95%), Utah (4.55%) 

Scenario: You're a Colorado-based course creator making $60,000/year. You would owe $2,640 in state taxes (60,000 x 4.4%). The state will simply apply a fixed 4.4% irrespective of whatever you earn in a year.

3. States with a progressive income tax

Most states use progressive income tax rates, where higher earnings are taxed at higher percentages. Each state has varied tax brackets based on the earnings range.  

Examples: California (1% to 13.3%), New York (4% to 10.9%), Oregon (4.75% to 9.9%) 

Scenario: Let's say you're a creator residing in New York earning $80,000/year. With New York's progressive taxation model, your income falls under the 5.5% to 6% tax bracket. So, your total income tax may be roughly around $4,400–$4,800, depending on your deductions.

Note: Always check your state’s Department of Revenue website to confirm State Income Tax rates and other filing requirements.

Sales tax for digital products

So far, we've discussed the tax the creator owes based on their earnings. Sales tax is something that is borne by the learner when purchasing their digital product. The creator's role is to collect and remit taxes according to their state and the nexus of the customer's state.

What is state economic nexus?

Economic nexus means the creator must collect sales tax in a state where they sell their digital products, even if they don’t live there, once the sales exceed certain thresholds. These thresholds are usually calculated on these criteria: 

Revenue: Total sales in the state 

Number of transactions: Number of customers in the state

Example: If you live in Florida but earn $120,000 selling online courses to New York customers, then you should register and collect New York sales tax once you exceed the state’s economic nexus threshold.

These three states are simply an example to help understand the concept of economic nexus. Economic nexus varies for each state, so check your state's revenue department's official website for the latest threshold. 

Scenario 1: You sell $50,000 in digital courses to customers in Washington. In this case, you don’t meet the state's nexus threshold, so no sales tax is required. 

Scenario 2: You sell $150,000 worth courses to customers in New York and have 100+ transactions. In this case, you’ve crossed the state's nexus threshold, so you must register and collect New York sales tax.

Tax exemptions for online course creators

When collecting sales taxes, you should note that not all digital courses are taxed equally. While many states apply sales tax to all digital goods, some states provide special exemptions based on what type of course you sell and how it’s delivered. 

Here’s what you need to know: 

About 30+ states tax digital products, but the definition of digital products differs by state and sometimes even by county/city. Example: A downloadable e-book might be taxed in one state but not in another; similarly, a "recorded video" might be exempt in some states. 

Exemptions also depend on the type and category of the course. In some states, educational content isn't taxed whereas entertainment content is. It can also depend on the type of buyer. If you're selling to particular schools or non-profits, then the sales tax is exempt. 

The tax exemption rules for online courses are quite complex and constantly changing, so it's crucial to understand individual state tax policies where you're selling your courses. The best way is to visit your State's Department of Revenue website and do your due diligence.

Tax deductions for course creators

As an online course creator, you're allowed by the IRS to deduct common and necessary business expenses. The more legitimate expenses you deduct, the less income you’ll be taxed on. 

These are the common deductions that course creators can claim to reduce their taxable income: 

• Software charges: If you're hosting and managing your business using software tools, then you can deduct them.
• Equipment expenses: You can deduct expenses related to equipment and gear purchases. For example, if you buy a DSLR camera to record your course videos, then the cost of camera as deducted.
• Internet charges: You can also deduct a percentage of your monthly internet charges
• Marketing expenses: All of your marketing expenses are 100% deductible. For example, if you're running ads on Meta to promote your courses, then you can fully deduct the ad spend from your earnings.
• Travel expenses: If you're traveling for business-related events, then 100% of your flight and accommodations, and 50% of food expenses can be deducted towards travel expenses.
• Home office deduction: If you regularly use your home exclusively for work (like shooting content or editing your courses), you can use the home office deduction.

Important note: Deductions only reduce your overall taxable income, not the actual tax charges directly.

Final thoughts

As you grow your online course business, it's crucial to have a good understanding of tax policies and regulations. It not only helps with being compliant but also helps save a ton of money by avoiding chances of fines and claiming every eligible deduction.  

Tax policies, both federal and state policies, are usually subject to frequent changes, so the best practice is to refer to the official revenue website and stay updated.

Disclaimer and sources
This article is intended for educational purposes only and does not constitute legal or tax advice. Tax laws change frequently and vary by jurisdiction. Always consult a licensed tax professional or accountant for personalized guidance.

Sources:
IRS.gov: self-employment tax
State sales tax portals
Tax Foundation