Amazon Vine

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Thought I'd follow up with a couple analogies:

Farmer with 20-acre field buys seeds (corn), an expense.

Corn crop on 20 acres yields several bushels of corn in harvest sold at market; the income.

Chrysler operates and maintains a 2000-acre Nevada test track costing $100,000 per month; an expense.

Chrysler tests some new prototypes for GM exclusively for one month.  For $100,000 income.

Vine reviewer subjects garden and camping products to rustic, woodsy conditions in a 20-acre rural setting.  an expense.  

Vine reviewer retains the value of the items tested as compensation; the income.

Somewhat

Oh, and Chrysler didn't take $100,000 cash, but instead the equivalent value of GM vehicles that were tested on the track (i.e. income). They'll probably take them back to the shop to reverse engineer them.

I am not an accountant, just another Vine user trying to figure the taxes out. I think the problem with your analogies is that you don't have any expenses. The value of the products is a credit, not an expense. Plus you are combining two businesses, Vine with your other business. I think your other business would have to purchase the Vine stuff to make it an expense. Then your Vine business would have double income for the Vine item. Once when received from Amazon and a second time when you sell it to your other business. I am trying to figure out if we can count the product as a loss if we use it for the review and no value is left after the review or it arrives damaged or unusable. I own other businesses too but I would never claim products I get for free as an expense. How is it an expense if you did not pay for it?

Thanks for the observations!

 

So, my business, a 20-acre rental property attempts to generate diverse and multiple incomes… rent from a tenant, crops, and energy production.
The crop and energy activities require inputs, tools and materials.  Expenses.  
Fortunately as I actively manage the property and procure tools and materials, Vine is available as a source.  Under the umbrella of the rental business I review items essential to the operation of the rental and obtain product value (income).
It just so happens these products remain integrated and expended into the employ of the rental property, as opposed to using elsewhere or selling later on.
Bottom line expenses cancel income.

What was the expense? You didn’t pay for the Vine stuff. 

I did pay for the Vine items with my reviewing brainpower, time, and effort.  That has value, and that value was spent (expense) to earn the Vine items.

I need some fencing to protect my commercial garden plants from being eaten by deer.

Objective: obtain fencing for my garden.

Scenario A: I could go to work as a reviewer for Consumer Reports and earn $100.

I could then go to Home Depot and buy $100 of fencing and install around my commercial garden.

Labor earns $100 income, fence installed at garden; expense $100.  Objective met.

Scenario B: I could review Vine fencing and earn $100 of fencing (per 1099-NEC).

I then install the $100 value fencing at garden; expense $100.  Objective met.

The fallacy in your reasoning is that your labor is not deductible.  If you hired someone for $100 to install the fence and the materials received from Amazon were valued at $100 you would report the Amazon income and deduct the $100 cost of labor that you paid for. A wash. But your labor is not deductible. 

Exactly! I agree with you! He could maybe start another business that is separate and then install the fence and then bill his farm business the $100. Not sure that would pass audit if he is not also doing jobs off the farm doing similar work for hire. I am all for trying to figure out legal ways to offset the taxes if we claim it as a business and not a hobby.. There is a lot of mental gymnastics going on above in the scenarios as stated.  

I am not deducting the labor as an expense.

I'm deducting the value of the Vine items employed by the Rental Enterprise.

I assume that an expense does not necessarily need to be denominated in money; that an expense can be in the form of a tangible item.

You can’t deduct an item that you didn’t pay for. 

That is not how the IRS is going to see it. If you make $100 income and then go spend that $100 on something then the expense of buying that item might be tax deductible if it meets certain requirements. It is not always 100%. Some items you can only claim a certain % and some depreciate over time so you claim part each year for so many years. So I can see you reasoning that if the item was used in the business then you should be able to claim it as an expense like if you bought it. It just don't think it works that way in the eyes if the IRS. 

paid with labor

You're coming around myname.

Let's assume your business is editing and printing business plans for startups.

Suddenly your printer is out of ink.

You decide to spend some of your labor and review printer ink from Vine.

They send some, you run a test print, do the review, and then instead of using this $100 ink cartridge for family use or giving it to a relative, you use it exclusively for your Editing business.  You've expended it there.

However, the drill you reviewed is not an expense b/c it is not used in your business.

"Paid with labor", when it's your labor, is what makes it INCOME FROM WORK.  You worked (your labor), you got paid.  

That is how the IRS will see it, 100% of the time. 

What you're saying here will prove to any auditor that it's income, not an expense. It is just that simple.  You performed a service and you were compensated for that service with the items you received.  That's the end of the story. 

If you need something in order to properly test a product - say the ingredients for bread to test your bread pan, you can deduct a reasonable amount of that (like the cost to make one loaf for testing or such).  You could deduct miles to pick packages up at the post office, if that applies to you, and maybe a home office deduction.  The cost of anything you use to produce your reviews - editing software or something like that - could be used but using the items in another business and calling those an expense won't work if audited.  

All you'll do if you try to explain that you paid with your labor is strengthen the position that it's self-employment income.  Becauset that is what it is. Income for your work. 

I have no argument that it is income from work.  Income for my review.

An asset, my work, has been converted into a different form of value; a Vine item (income per 1099-NEC).

My review work is done in the context of, and under the umbrella of, my Rental Enterprise.

It just so happens that I need to expend the entirety of this Vine item immediately and wholly in the Rental Enterprise.  I am expending this Vine asset on the Rental Business.  Nowhere else.  I'm not giving it away or selling it for money.

Income is earned by the Rental, and Income is spent on the Rental.

I don't think you quite understand how it works. I have been watching some videos from tax professionals on how to properly convert personal use items to business use items. So there could be something there. You have to keep a spreadsheet of how much you paid for the item of your own money. How much the fair market value was when you started using it in your other business. Then you have to choose the lower of the two as the value. Then you have to see how many years the IRS makes you depreciate the value of the item. Then you have to do the math to figure out how much is depreciating each year. The example was a laptop and desk you owned as a personal item. You begin using them in your business. The IRS says the laptop depreciates at 5 years and the desk at 7 years. So you do the math. Then you can deduct year one value on year one, year 2 on year 2, etc. But I do not know how it applies since we received the item for free. I think we would just put $0 in how much we paid since the ETV is income and not what we paid. Then we could maybe put the ETV as what it is worth. But then you have to choose the lower amount so the $0 would mean we cannot depreciate it. But if we could put the ETV as what we paid, since we received it as income and then it would be like we then bought it since we have the item and no actual money. I personally think receiving $100 Vine item is the same as receiving $100 cash and buying that item. You just can't deduct it on taxes like that. But if you thought of it that way and put the ETV as what you paid because that is the value of the item when you got it for personal use. Then you do the spreadsheet to convert to business use. Then depreciate it properly. That might be a legitimate way to deduct it as a business expense. I am NOT a tax professional though but I feel this is worth asking a tax professional if this would be a legal way to do it.

Amazon tells you what the FMV is, it's on your 1099-NEC.  They are new items, not used, not damaged.

It also might help you to distinguish between capital goods, which should be depreciated, versus consumables or comparable expenses, which are not.