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Level 2

Question

Paying Taxes on Products Received to Review through Amazon Vine

Forum|Forum|1 year ago
January 25, 2025
27 replies
2352 views

I was selected to review products through the Amazon Vine program last year. The products they send are considered compensation/income in exchange for the review. However, they do not allow us to sell or give away the items for 6 months. And some of the products are unusable and worth nothing even though they put the estimated tax value (that is inflated) on the 1099-NEC they send. The other issue is that in order to review the product, we have to use the product.

I understand we have to pay income tax on the ETV of the product. I also understand that if we claim this as self-employment income as opposed to hobby income, then we can deduct expenses. What I want to know is can we deduct the ETV of the items themselves as a business expense or loss if the product arrives damaged or unusable and had to be thrown away or disposed of? Also, if we have to use the product up in order to review it, then can we deduct the ETV as a business expense since we no longer have the product due to having to use it to perform the service of reviewing it? Also, can we claim these products as inventory if we are not using the products for personal use?

I am not in any way trying to find any loopholes. I know some Vine reviewers may be doing that. I am trying to figure out the proper way to report inventory, losses, expenses, and income related to being a Vine reviewer so that I am not paying more taxes than I should actually owe. Thanks!

TurboTax Self Employed Online

RobertB4444

Level 15

All of the products that you are receiving from Vine are being treated as though Amazon had paid you cash and with your disposable income you chose to purchase their products.

The only way to take the products into inventory is to actively set them up for sale. Then the inventory value could be the same as the purchase value.

If you received a defective product and could not exchange it or receive a credit to your account for it then you should absolutely deduct it from your income. Create an expense for "defective product received" or something like that.

Using the product up doesn't create a tax deduction any more than wearing your clothes does. You use stuff you buy.

@mynameismynameandonlymyname

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JayJay808

Level 2

@RobertB4444 wrote:
Using the product up doesn't create a tax deduction any more than wearing your clothes does. You use stuff you buy.

Even if the full use of said product was necessary to be able to write the review? Wouldn't that mean that someone could have a loss as a result? For example, if a $10 product (as listed on the 1099NEC) is gone/used up entirely without any benefit to the reviewer and a review needs to be written, would that not mean they lost $10 of value? Basically, what I'm trying to figure out is how this would be different from other deductions. For example, if the review were to be submitted via regular mail, we'd be able to deduct the cost of the paper, printer ink, stamp, and envelope, would we not? How is this different if the use of the product was entirely for the purpose of delivering the service (writing the review)?

Another question, if I may: You mentioned taking products into inventory, putting them up for sale, and that the inventory value can then be set the same as the purchase value.

Since Amazon dictates that members of the Vine program cannot sell their item within the first 6 months of ownership, it feels reasonable to assume there is a loss in value, even more when the item was used in part for a review.

Am I correct to assume that by doing so, it means I could sell the items after 6 months at a loss, and therefore claim the loss on my return? For example, on a $10 item, I would pay the necessary income related taxes. After 6 months, I place it into inventory at a value of $10 and put it up for sale at a reduced price since it's no longer new. If I then sell the item for $5 (or even dispose of it, if it doesn't get sold), I could deduct the loss (and if sold, I'd have to pay tax over the sale price as well). Is that somewhat correct?

I'm sorry if my questions seem a bit snarky, I'm definitely not trying to be. I'm merely trying to get a good idea of what I can and cannot do.

RobertB4444

Level 15

A lot of this depends on how you're going to enter this into your tax return. If you are entering this as hobby income as we started with then all of the income is taxable and you don't get to deduct expenses. But on the upside you are not subject to self-employment tax.

If you decided to create a business on your tax return as a self-employed reviewer then anything that you had to purchase in order to do the job would be deductible including the business portion of your internet and your laptop and any product used up in the review process.

In the case of a business where you were writing a review in exchange for money then you would deduct the product that you bought and used up in order to write that review. You would use your own money to purchase that product so you would have a deduction for buying it. In this case they just took out the middle man so you could deduct the cost of the candy bar when it is sent to you.

In the case of items not used up but resold later - you would have to take them into taxable income initially. Then they would go to inventory.

So you receive a $10 widget for review. That is ten dollars in income to you and that income has turned into $10 in unsold inventory.

Then, when you sell it, you could indeed have a gain or loss on the inventory in your store.

I would keep meticulous records if you're going to go this route. I would also make sure to note that because of that six month gap you are definitely going to have a number of products that are in your inventory and can't be sold that you will be paying taxes on at the end of the year and receiving deductions on in the following year. And whatever the income is on those products in inventory and the ones you decide to keep for personal use you will be paying self-employment tax on.

@JayJay808

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Spino

Alumni - Champ

I came to this discussion via an internet search because I am an Amazon Vine reviewer. To me, as a somewhat experienced and educated small business accountant and tax preparer, Amazon is setting up a scam and we should not facilitate that by paying their taxes. Here's what I mean: By declaring the suggested retail value (or some proxy they pick) and reporting that as income to Vine reviewers, Amazon is likely taking an inappropriate deduction on their taxes. They certainly do not pay that amount, if anything, as the cost of those goods. They also provide a rather detailed set of obligations to Amazon reviewers and completely control entry and exit from the program as well as which reviews they publish.
So what is actually happening? Continued participants in the Vine program must perform ongoing services at certain levels to remain in the program, not to mention advance in "status." They are not hobbyists, but rather qualified writing professionals who have been carefully screened (based on past performance) for participation in a program. All they receive in exchange are goods of some value, with restrictions. So, while Amazon is reporting an amount of income, all that income is necessarily spent on acquiring inventory or materials required to do a job in exchange. That is cost of goods or supplies.

1) Vine reviewers should expect to file as small business owners. They are receiving income, even if it is all spent on goods required to do the job. The only reason to call it a hobby is if you're rich and don't care about the money.

2) All income from Amazon should be expensed as either supplies (which are consumed in providing the service) or cost of goods (inventory that can be resold or repurposed for personal use.)

3) Inventory has to be valued. Since by agreement with Amazon, goods must be kept for at least 6 months, there will always be some inventory unless all goods are treated as supplies. If any goods are intended to be resold, they need to be valued at the end of each tax year.

4) Even if goods are treated as supplies rather than cost of goods for resale, they still must be treated as income if they are converted to personal use. The value of these items at the time they are converted to personal use should be fairly determined. For guidelines, consider the valuation guidelines for contributions of goods. There are several alternatives presented there including such things as comparative sales and values at thrift stores.

So I would conclude the following:

1) Amazon's declared valuations on the 1099 are not likely appropriate valuations for the goods actually received (and required to be held for 6 months prior to resale or even gifting) by a small business who is not running the world's largest online retail marketplace.

2) Items converted to personal use should be valued appropriately and that is in fact taxable small business income, after expenses, that should be reported.

3) Items held as inventory for potential resale should be valued appropriately at the end of each tax year. Active participants in the Vine program who resell products received should expect to declare inventory on hand each year because of the six month obligatory holding period they agree to with Amazon. This inventory can be easily tracked though because Amazon keeps a complete record for you online (which of course would also be available to an auditor if the IRS were so inclined for any reason.) You can add the work of tracking inventory to the work of writing reviews as part of your business activity, along with your prime membership, writing tools, camera, internet connection, and so on. Of course your time itself is not an expense to the business, no matter how much of it you take to earn this paltry income from Amazon.

user17601651056

Level 2

Just to clarify- you said all income from Amazon should be expensed. And they should either be expensed as supplies or expensed as cost of goods. So an item..such as say a Car Play system where the audio didn't work so it's unusable and unsellable (it's basically trash) would be categorized as "supplies" for expensing? Or an Airtracker that quits working a week after you receive the item would be expensed as cost of goods since it worked long enough to do the review? What about things that if you could have returned and gotten a refund/exchange if you had actually bought the item- like a pair of shoes that didn't fit- so you don't actually get any value out of and just have to store for 6 months until you can trash them/donate them?

Spino

Alumni - Champ

@user17601651056 You receive a broken car play system from Amazon. They keep track of that and send you a 1099 at the end of the year that values that broken car play system at $100. So you have to report that $100 that they tell the IRS they paid you, but what you actually have is the broken car play system, which you value at $0. So you just suffered a loss of $100 and you want to figure out how to report that.
Here's the thing--you could keep track of every single item and what it's value is based on comparable sales or thrift sales or whatever basis you use, and include the reporting of how you value these things in your records in case you are audited. However Amazon wants you to review at least 80 items (or whatever it is) every 6 month review period and that kind of detail is probably not worth your time. So you are looking for a work saving option that the IRS would accept if audited and would not require useless work for little or no benefit. One way of doing that, which Trump made famous/infamous, is to use that value but give it a haircut.

That means that you say, "Overall, by the time I follow Amazon's rules (or whatever you are doing) I still end up with some value, though it is certainly not the retail value of products that might not even be viable and have to be kept for six months, etc. So what is it? You might make some reasonable assumptions and come up with a value expressed as a % of the Amazon retail. IRS might challenge whether your assumptions are reasonable, but they are unlikely to challenge your business choice to do this.

One Vine reviewer I know says she only reviews items she expects to sell for the value of the income taxes. I don't know her tax rate, but if it is 22% then she is saying the items she reviews are worth (on average) 22% of the originally declared value by Amazon.

You also raise the question of storage. If you pay for that storage, you can deduct that actual cost. If it is just mixed in with your personal property, the IRS is likely to say, "No, that is not an identifiable business expense." [He says as he sits in a home office cluttered with products to review and products already reviewed he needs to store someplace.]

Crazycohy

Level 2

You are pretty spot on as to how I think about it. Taxation is two things: theft and voluntary. The Viners that pay tax on the items they receive, do so voluntarily and once you do so, setting a precedent, the IRS holds you to that. These payers also get very mean and nasty to those who see it differently and do not offer to pay taxes. I believe the 6 month rule and the inflated ETV are the factors that cause this theory to not hold water.

hereforit

Level 2

People are saying that they essentially "zeroed" out their entire 10-99 bc they asked amazon to correct an error on their 10-99 and if they don't get a corrected 10-99 from them, they are able "per the IRS" to completely remove it from their tax liability. The entire 10-99. This came from a popular you tuber that has used this strategy 3 years in a row for her vine taxes and reports that it worked for her. OBVIOUSLY, I take it with a grain of salt.... but she showed her correspondence with them. She explained in detail. She DID say this is just what SHE DID and she doesn't advocate that everyone just jump to doing this, but she says she wanted to explain what worked for HER.

QUESTIONS:

1-A)What ARE your responsibilities if you have a 10-99 that is INCORRECT? (1-B)What does the IRS say you do about an incorrect 10-99?

2-What do you do if it's incorrect and you cannot get the issuer of the form to send you a CORRECTED 10-99 FORM?

3-A)What do you do on your taxes if at the time of filing there's something on your form that's still inside the 6 month window?

(3-B) do you act as though it's NOT bc it isn't "income" yet as it cannot be sold?

(3-C) Do you hold it and report it as "inventory"? and if so how do you value inventory that the value will only be a certain percentage of that listed value once sold? Do you just make an adjustment explaining that? Add it as a piece of paper included with your filing, or do you just have that as an explanation if you get audited?

I apologize for all the questions, but I just want some clarity so that I know which direction to go with these taxes. I DEFINITELY appreciate your time in answering our questions. It really means a lot to me particularly. So, thank you so much. -Jess

JayJay808

Level 2

@hereforit wrote:
People are saying that they essentially "zeroed" out their entire 10-99 bc they asked amazon to correct an error on their 10-99 and if they don't get a corrected 10-99 from them, they are able "per the IRS" to completely remove it from their tax liability. The entire 10-99. This came from a popular you tuber that has used this strategy 3 years in a row for her vine taxes and reports that it worked for her. OBVIOUSLY, I take it with a grain of salt....

Everything for the likes was my first thought when I read that. I would indeed take it with a grain of salt. If they do this, I imagine it's a matter of time until the IRS catches up and initiates an audit.

@hereforit wrote:
1-A)What ARE your responsibilities if you have a 10-99 that is INCORRECT? (1-B)What does the IRS say you do about an incorrect 10-99?
2-What do you do if it's incorrect and you cannot get the issuer of the form to send you a CORRECTED 10-99 FORM?
3-A)What do you do on your taxes if at the time of filing there's something on your form that's still inside the 6 month window?
(3-B) do you act as though it's NOT bc it isn't "income" yet as it cannot be sold?
(3-C) Do you hold it and report it as "inventory"? and if so how do you value inventory that the value will only be a certain percentage of that listed value once sold? Do you just make an adjustment explaining that? Add it as a piece of paper included with your filing, or do you just have that as an explanation if you get audited?
I apologize for all the questions, but I just want some clarity so that I know which direction to go with these taxes. I DEFINITELY appreciate your time in answering our questions. It really means a lot to me particularly. So, thank you so much. -Jess

1a) It is my understanding that, if Amazon (or anyone else) issues you an incorrect 1099NEC, you should try to get it corrected. If they refuse (and I am aware Amazon is not doing this), then you will need to adjust it on the Schedule C. First, you enter the (incorrect) amount from the 1099NEC, and then create an expense entry that you name something like "Incorrect 1099 adjustment". Make sure to keep details about everything (emails that you contacted Amazon, for example, and records about the products and whatnot) in case the IRS contacts you about it. AFAIK, you can use Form 8275 to explain the issue and the steps you took to correct it.

1b) You can call them at [phone number removed]. It may be smart to do this before following my instructions from 1a.

2) see previous answers.

3a) The IRS does not care about the 6-month window during which you cannot sell the item. As far as the IRS is concerned, the items are in your posession and taxable. The 6-month "do not sell" rule is an Amazon rule, not IRS related.

3b) It is income, and you will have to report it. Not being able to sell it because Amazon doesn't want you to, has nothing to do with the IRS. If you do sell the item, you could do this after the 6-months timeframe, and also several years down the road, that doesn't matter to the income taxes for receiving the product from Amazon in exchange for the review service that you provide. They are different activities.

3c) Here's what I do: First, I do not sell what I receive. I feel it is too much of a hassle with too few benefits. Regardless of that, however, let go of the "it is within 6 months that I received it, and cannot sell it" idea as it will completely screw up your taxes, and as mentioned above, the IRS isn't going want this either.

Now, despite not selling anything, I do consider what I receive part of my "business" for tax purposes. The item in my business inventory for as long as I haven't reviewed it. The moment I review the item, I will consider it part of my personal inventory. This moment (when just before or just after I wrote the review) is when I check the actual price, if there are discounts or price changes, and consider its actual Fair Market Value (how much is used during the review, what is it actually selling for, does it all work, how much could I sell it for if I wanted to do so, etc). If this is lower than what Amazon says it is (and it typically is), then I will mark it on my spreadsheet and add that amount to my deductions on Schedule C. To avoid any overlap between years, and to make it easier on myself, I simply try to have everything reviewed by the end of the year (usually works for me). If this isn't possible, for example, if I receive something on Dec 31 and cannot review it until Jan 2, then I try to estimate what the value loss due to reviewing will be (or simply enter it later, but before filing taxes and consider the item to be in my personal inventory of the previous year). I do this because you're not supposed to file the value of the item in one year and take deductions on that value in the next year. The alternative solution would be to not add the ETV of that item to Schedule C in that year, and take that value (and any deductions) to the next year, but this would also mean the need to adjust the 1099NEC for both years (both the year you received the item, and the year you actually file the item), and adjusting the 1099NEC is something I want to avoid due to the increased audit risk.

As for any adjustments/deductions I make/take, I keep accurate records in a spreadsheet with a lot of information (probably more than necessary). Everything is explainable, thanks to the spreadsheet. I write comments when necessary and make sure to grab screenshots if I use the listing of the actual product for the adjustment. I do not send this with my filing, but add the totals and mention it on a single line with a short description.

Whatever you end up doing, though, the main thing is to keep records of everything you do. That way, even if you make a mistake, you are always able to explain it and likely able to work toward a solution with the IRS.

Ps. Keep in mind that I'm not a tax professional but a member of the Vine program, like you. I do not claim to know the definite answer to the questions above, but I tried to answer them as best as I could. Please make sure to do your own due diligence and/or reach out to a CPA.

hereforit

Level 2

thank you!

reelinitin

Level 2

Theoretically you could have problems considering the FMV after the review for something you keep….you obtained the same usage reviewing it as you did after (that’s just my reading). That’s what i don’t get.

IF you keep some stuff, sell some stuff i think it could be argued the below would be correct and you would split the process. I’m not a tax person but this to me from my reading (assuming there’s nothing prohibiting the process) is a logical way to separate personal and business (reviewing) and dealing with the phantom schedule c income and 1099-nec.

item arrives basis = etv. This may be very different than amazons etv as an item could take months to get to you. By that time it is 20% less. fmv should be adjusted accordingly. If it’s not released yet, i don’t think you have a choice but to accept.
item is opened and reviewed. If you intend to sell it, the portion used up was used for the review for the business. You should not have to pay SE tax on that. It’s open box, you’re not keeping it. It’s the same as consuming something entirely during the review. I’d also think when deciding value since the items are very amazonish that you could use amazons own warehouse grading guidelines. It would tough to argue against their own grading for openbox for the same product. Basis here is now: fmv - (fmv *open box condition grading %). but you record that FMV adjustment in your books. Because if in the future you decide to move something from inventory to personal use instead of selling it you’d need to use the original basis. So that would get added back in.
That item sits in inventory for sale and is expensed via cogs.

The problem with with ETV is it’s a phantom net profit on schedule c if you sell it. The above accounts for delays in transit and price differences (sometimes many months), it accounts for the paying SE only on things , phantom profit on schedule c profit and allows sensible accounting. And it avoids the mix of personal and business usage during that seems to come up often in irs rules.

If you’re keeping it all it needs to be hobby but due to this 1099 jibberish nothing is a good fit except them agreeing with you. If you keep some the above seems reasonable, stuff you keep you pay se on, you did the review realized and got usage of the product the entire time. IF you sell some the above looks reasonable to argue that fmv should be adjusted and the break offsets the SE stuff on the stuff you keep.