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.
