How do I file taxes for items sold that were received free through a review program?

[mynameismynameandonlymyname]

This question might be a little complex and unusual, so I hope someone knows what I am talking about and can help me.

I review products through a program called Amazon Vine. The value of the product is considered income. When doing taxes, my understanding is, I need to enter to 1099-NEC that Amazon sends me as self-employment income. Then if I sell that item for that amount or less then it is not considered more income. I would only need to report any profit I make over the cost basis.  

The question I have is related to the selling of the items at a flea market. Amazon Vine makes us wait 6 months to sell the item. Legally, the items belongs to us right away since it is our income. But to stay in the program and keep getting items, they want us to wait for 6 months before selling. So at that point, if I decided to sell these items at my flea market booth where I would be taking payments with Square, then Square is going to send me a 1099-K for sales made at the flea market. This gets tricky thought because any of the items sold that are Vine items have already been reported as income. Selling these items just converts them to cash from product.

So let's say I sell a $100 item I got from Vine. This shows on my 1099-NEC as $100 income. After my 6 months time then I put it in the flea market and put $50 on it. I have a loss and am not supposed to have to report this at all because I did not profit and therefore did not receive additional income. But the customer pays with a card and Square sends a 1099-K showing $50. It looks like I have a total of $150 income from this one product when I really have a $50 loss. So, how do I account for that to make sure I am not paying taxes twice? I mostly want to sell some of these items to try to save for the taxes I have to pay since they consider the item value as income even though there was no $ involved.

Thanks.

[SusanY1]

You do need to report the income from the sales, even though you will often have a loss. These losses can help to offset your other income.  You can also deduct the costs associated with the sale of the items such as your flea market fees, payment processing fees, miles driven to and from the flea market to sell, supplies used (pens, receipt books, price stickers, etc.).  

When you sell the item, your "basis" in the item is the income that you recognized  when you received the item and wrote your review for it (the "ETV" from the itemized report on your Vine Account page).  As you've noted, when you sell something for $50 your "cost" is the $100 of income you recognized giving you a $50 loss.  When you sell $0 ETV items, you will have a profit.

The easiest way to record this is to add all of the totals in sales to your "other income" for the business in TurboTax and then list the recognized income of the items sold as either cost of goods sold or an "other" expense noted as something that makes sense to you.  I use this second method and the description "recognized income" so that it's clear to me what the expense is, should I be invited at a later date to show some sort of support for this number to the IRS.  

When reported as a business (either separate from your Vine review writing or combined with it), these are deductible losses.  

You could report the sale of these items on the same Schedule C as the income from your Vine 1099-NEC or on a separate Schedule C.  Use whichever method is easier for you.

Sales of the items, in some cases, would be more appropriately reported as the sale of personal items.  Sales of personal items can't create a loss that offsets other income, where sale of the items as part of a business can.  
 

[mynameismynameandonlymyname]

I had to read this several times to understand it. I think I get it, but have a few questions. I was assuming I need to sell them as personal items (and not report any loss) even though they are being sold in a flea market. So, you are saying I can sell them and claim the loss on taxes by stating the ETV as my cost of items?

The income for these items that is reported on the 1099-NEC is for the reviews. So that would be a different business in my head. So, I would need to put the 1099-NEC from Amazon as income on a schedule-C related to reviewing the items. I assume I can deduct any business expenses related to reviewing the items? I don't foresee any though since it does not cost me anything to recieve items to review and I do not currently make videos for the reviews, so there are no expenses there.

Okay, so for the flea market. I would consider the ETV for any item I sell at the flea market as the cost of goods? And then report the sales. And anything under the ETV is a loss, and anything over the ETV is profit? Does this in anyway cause me to be paying income taxes on the item twice? That is what I am worried about.

Does the cost of goods cancel out the ETV? What if the item is received in one tax year, added to my flea market that same year,  but does not sell until the following year? Does the cost of goods get put on the income tax year that the item was ordered on Vine and income was recognized? Or does the cost of goods get reported on the tax year that the item sold?

[KrisD15]

Yes, I agree. These are items you did not go out and purchase for your own use, then got tired of and sold, they were obtained for a business purpose, to review.

It's even better to report this all on one schedule C (one business return) since then you can easily remove the double reporting of income. 

So say you get that 100 from amazon, then sell and get 50 from Vine.

You can enter the Amazon-NEC as income and then record that same dollar amount as product cost. 

100 income, 100 product cost = zero income.

Then, when you do sell and get 50 from Vine, it's income.

100-100+50=50 income

You might have other costs, such as part of your internet service and the some office supplies.

I would recognize the product expense right off, since the value of the product was an immediate cost to perform the review if you are paid at the same time the product is sent. 

Then I would recognize the income when the item sold.  

Just as a note, you do want to have a strategy in case the IRS were to ask. If you make a little profit, that's fine. If you show a loss, the IRS will want to know why you continue to do it. If a constant loss, the IRS might say it's a hobby.