Amazon Vine 1099-NEC Reporting Forcing the Creation of a Self-Employed Business Entity for Vine Users

[RichardH]

Like others dealing with this issue, I am having difficulty with Amazon generating a 1099-NEC reporting the product reviewing activity as self-employed income. This interpretation causes Turbotax to treat this income as being generated by a self-employed small business and creates the required business reporting forms and appends them to your return.

Now, there is an ongoing debate as to whether or not this is really self-employed income and does it create an obligation to pay additional Social Security and Medicare taxes in addition to the personal income tax. The other side of that debate suggests that because no cash is exchanged, that the goods received are not taxable income. Yet another slant on this suggests that Amazon doesn't really own the products... the sellers do, so Amazon is not actually giving you the products and therefore shouldn't represent themselves as the responsible party.

 So, should you receive a 1099 form from each vendor separately (because that is who is benefiting from the reviews), and should each vendor have a separate $600 threshold before you have to report the value for that vendor?

Someone in another discussion said that because the goods have a value (to be further decided just what some of that overvalued junk is really worth) that it is still income, just in another form. So, if the IRS is forcing you to create a self-employed business entity to report that "income", then I would think that those items would become assets of that business and allow the business owner to claim all available deductions associated with that business entity. That should allow a person to deduct business use of their home to have a workspace to review the products, adequate storage space to house all of that inventory, a deduction for computers, printers, office supplies needed to actually perform the reviews and maintain contact with their Amazon suppliers... plus internet service costs and other business expenses.

In addition, if you acquire inventory or equipment that you use in your business, instead of having to keep those items and depreciate them over a period of time, businesses are allowed to dispose of some items in the first year under an accelerated depreciation exception called the Section 179 expense where you can fully depreciate and expense out up to $17,500 of items (per year). Under those IRS guidelines, it might suggest that once the 6 month holding period of those goods (as dictated by the Amazon Vine contract) has expired, you could dispose of those goods (the company assets) and take the loss on the value that you supposedly "paid" for them and exempting up to $17,500 per year of Vine items from your taxable income.

Now I am not a tax attorney, so please don't act on this without consulting your accountant or tax attorney, but I do have many years of operating small businesses and have utilized some of these business tax options for filing my own business taxes. I am just suggesting that if Amazon and the IRS are going to insist that these goods derived from the task of reviewing items truly is business income and considered a cash equivalent, then those goods should be considered assets of the business (sole proprietorship?) that they are forcing you to create and you should therefore be able to avail yourself of all of the associated business tax deductions and reporting opportunities.

I would appreciate hearing from other business owners on this topic.

[RobertB4444]

The key to whether it is self employment income is whether you do it to earn money.  And free products count as money.  So if you're writing reviews just to be writing reviews as a hobby then it shouldn't be counted as self-employment income (although it would still be taxable).  

But if you're doing it for the free products then it's a side gig and it is a self-employed job.  But - as you point out - self-employed jobs have expenses.  In order to earn the 'money' from Amazon you may have a home office, which would be deductible.  You definitely have a computer that may be deductible - at least for the percentage that it is used for writing reviews.  Same with the internet necessary to earn this money.  A hobby does not pay self-employment taxes but also can't deduct expenses.

As for which entity issues the 1099-K - in this instance Amazon is the payment processor for all of these independent sellers.  As the payment processor they are definitely responsible for issuing the 1099-K.

The question of depreciating the items that you have been paid with is trickier.  First, the items that you have received are essentially barter income.  You've traded services for goods instead of cash.  In order to be depreciated an asset has to have a life longer than a year and utility to the business depreciating it.  So if you receive a box of tissues from writing a review there is no way you could justify depreciating it as an asset of the self-employed business that you are running.  But a new laptop?  I would definitely depreciate that as an asset.

@RichardH