Paying Taxes on Products Received to Review through Amazon Vine

[mynameismynameandonlymyname]

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!

[RobertB4444]

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 

[JayJay808]

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@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]

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 

[JayJay808]

Thank you for the additional information, @RobertB4444  🙂