Amazon Vine and Online Retail Store

[wxman1]

I have a small online retail store (sole proprietor). I have a retail license that I use to purchase goods at wholesale, then resell them online for a profit. I also sell some of the products on Amazon. If I sell over $600 on Amazon, they'll send me a 1099.  I file Schedule C for this business venture.

I have recently been invited to join Amazon Vine (Amazon sends products at no cost for you to review and then you keep the product). They then send form 1099-NEC if the "fair market value" of those goods surpasses $600...

If I join, I would consider this as a hobby separate from my retail store as I don't currently plan on reselling the items sent to me through Vine. My understanding is that, even though I already file a schedule C for my retail business, I could report the 1099-NEC for Amazon Vine as a hobby and not include it on the schedule C as it's a separate venture from my retail business....Seems simple enough, so long as Amazon sends two separate 1099 forms (one for my Amazon sales and one for Vine) as I could claim the sales 1099 on my schdule C and the Vine 1099 as a hobby. But what if Amazon only decides to send one 1099 that includes the value of both sales and Vine products all together? In that case, part of the value on the 1099 would be business-related while another portion of it would be hobby. How would I mark only a portion of the 1099 as hobby and the rest of it as business?

As a second question, suppose down the road I decide to start selling the  "free, but taxable" Vine products and combine it with my retail business. In that case, the Vine 1099 would become reportable on my schedule C.....But,  the Vine products would become inventory which is not supposed to be taxable in any way. So would I add the "fair market value" listed on the  1099 as income on the Schedule C and then immediately deduct that same fair market value on the inventory/cost of goods sold part? Otherwise, I would be paying "income tax" on fair market value of my store's inventory. 

Thanks in advance to anyone that can provide some insight. This is all very confusing! 

[tagteam]

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@wxman1 wrote:

How would I mark only a portion of the 1099 as hobby and the rest of it as business?

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You are going to have to maintain meticulous records and allocate accordingly if you decide to take the approach you outlined. Be prepared to justify this approach in the event you are audited.

For reference: https://www.irs.gov/newsroom/earning-side-income-is-it-a-hobby-or-a-business and

https://www.irs.gov/newsroom/know-the-difference-between-a-hobby-and-a-business

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@wxman1 wrote:

.....suppose down the road I decide to start selling the  "free, but taxable" Vine products and combine it with my retail business.

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If you are going to take the position that the free products are the result of a hobby (hobby income), why would you combine them with your retail business? 

It appears as if it would be more appropriate to sell them separate and apart from your retail business as personal use items. If you sell an item at a gain, you would then have a capital gain on that item (rather than ordinary income subject to self-employment tax).