Sponsored posts, brand partnerships, and affiliate links: three streams of revenue that are relatively easy to declare. But what about a hundred-dollar lipstick? A new car? Or even a week-long stay at a five-star hotel? How do you inform the IRS about these gifts, and do you even have to?
Do influencers have to pay tax on gifts?
Do influencers pay tax on gifts? Generally speaking, it depends on the type of gift they receive and the intent behind it. Brands don’t hand out gifts from the kindness of their heart. They send out products to influencers because they expect compensation in exchange.
Influencers may not pay for their gifts with cash. But they pay for them with their status, following, and exposure. Unless they sell these items on, they can’t use these gifts to pay their bills. So, whether influencers pay tax on gifts depends on several factors.
What are the rules for influencers accepting gifts & taxes?
In the United States, all deals between influencers and brands involving a cash transaction require a 1099 and W-9 form respectively. These forms are used to declare tax returns; however, when there is no monetary exchange involved, it becomes more of a gray area.
If you receive a free product or service in exchange for promotion, it is considered a tax liability. Free trips, products, or services are a form of compensation for an influencer’s services.
By accepting the gift and agreeing to promote the brand, you enter a barter transaction. Therefore, your “free gift” ceases to be a gift and becomes taxable income instead. In this case, you will need to total the value of your items and add this to your reported income.
To further complicate matters, there are plenty of loopholes and exceptions to the rules. For example, you may not be expected to declare the value of your gifts if they don’t exceed the hundred-dollar mark. Similarly, influencers don’t pay tax on gifts sent if there is no contractual obligation.
Let’s round things up. Do influencers pay tax on gifts? It truly depends. As a general rule of thumb, if an influencer is expected to perform a service in exchange for the gift they receive, the value of this product or service may be taxable. Nevertheless, there are countless exceptions to the rule, and each gift should be evaluated separately.
Examples of gifts that influencers need to pay taxes on
Let’s say a fashion brand reaches out and asks you if you would like a free outfit. In exchange, they want you to wear the clothes in a video and tag their details as part of the description. Unless you agree, you won’t receive any times. In this case, you will be expected to pay tax on the value of the items you were gifted.
Imagine another brand reaching out to you asking for your clothing size and P.O. box. They want to send you a few items they think you would love, but they don’t expect anything in return. In this case, you are not expected to pay any tax on these gifts.
Strategies for reducing your tax burden on gifts
There are two main strategies you can employ to reduce the amount of tax you pay on gifts as an influencer.
Firstly, you can make the most of your tax deductions and declare all your business expenses. From utility bills to advertising costs and everything in between, there’s a fair chance you could declare more than you expected. This will bring down the total of your tax burden.
Secondly, you could get in touch with an accountant. As we mentioned, the role of social media influencers is relatively new, which means there isn’t much material out there regarding influencing and tax liabilities. To make sure you’re only paying what’s necessary, you can consider hiring a professional.
Get in touch with an experienced influencer accountant
To save yourself the hassle and headache of filing your taxes, you can always rely on the help of an experienced influencer accountant. Having an experienced professional by your side makes a world of difference. They can advise you when accepting gifts, declaring compensation, and navigating these gray areas.
We get it. You want to focus on creating content (not reading up on tax laws).
With the help of ZenStrategies, you can stop worrying about unpaid taxes and start focusing on what’s important – growing your business as an influencer.
With over thirty years of experience, you can rest assured we will treat your business like it’s our own.
We’ll always look out for your financial interest and guide you every step of the way. If you’re interested, don’t hesitate to get in touch with a member of our team. We’d love to chat!