I Got Paid in Free Products: Do I Have to Claim That?
(A spooky guide to influencer income and tax tricks that might haunt you later)
It’s every influencer’s dream to receive free products in exchange for a review. Who doesn’t want free stuff? But here’s a little something to consider when you’re trying on that black lipstick or tasting a comped meal . . . if it’s worth something, it’s not really free in the world of taxes.
When Freebies Go from Treat to Trick
A good way to think of this is in terms of compensation. Usually, we consider payment to be money, whether in cash or virtual, but in this case, it’s in the form of a product. In other words, if you get paid in pumpkin spice candles, the IRS still wants their slice.
Keep in mind that you don’t get to put your own value on the item, either. It’s all down to fair market value, or what you could get if you sold the product at a retail store. Don’t try to fool the IRS into thinking that fancy new vacuum you got is only worth $10. You might get away with it once in a while, but if they start checking, you’re in for a rough, haunted hay ride.
How to Avoid Getting Boo’ed by the IRS
So, how do you keep the IRS off your back? It’s actually pretty simple . . . be honest. You can’t play the “I didn’t know!” innocence card with the IRS, because there’s no excuse not to talk to a tax expert. Set up a way to keep accurate records, even if it’s just a notebook. Write down everything you receive, when you receive it, and what the value is. And no, free isn’t the value. You’ll need to record the cost of buying the item new.
It’s always a good idea to check with your tax expert, but generally, if you’re an influencer, you’ll use the Schedule C form to report your side hustle income. You should also receive a 1099-NEC form if a brand pays you $600 or more, even if it’s in product. AND you still have to report the income, even if the company doesn’t provide you with the 1099!
Witchy Ways to Be Smart About It
If you’re not at the stage of hiring an accountant or bookkeeper just yet, don’t worry. There are plenty of simple bookkeeping programs and systems you can use yourself. It’s worth it to learn one or hire someone to help out.
Fortunately, being an influencer can also come with some terrific tax breaks. For example, you can get a deduction on some of the items used for your work. If you buy a ring light specifically for the purpose of making videos or taking photos for your influencer gig, that can be a tax write-off. As long as you’re actually using the items for your business (a.k.a those items are helping you earn $$$), you can save money come tax time. The real magic trick is to make your write-offs work harder than your cauldron.
No Tricks, Just Treats
Free stuff can be taxable, so don’t let those taxes sneak up on you. Avoid tax jump scares by planning ahead and consulting with a tax expert. If you’re looking for someone to help you navigate the haunted corn maze of write-offs, deductions and credits, Ask Anna Tax is here for you!
