Question

Deducting free products for business use

Forum|Forum|3 years ago
February 26, 2023
1 reply
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I'm a Amazon Vine reviewer, so I receive free products from Amazon, which I can keep, in exchange for testing and reviewing the products. I will be receiving a 1099 with an Estimated Taxable Value (ETV) of the products, for which I have to pay income tax.

My question is, if I choose items specifically and exclusively for use in a separate business, can I deduct the ETV on that business's Schedule C? I would still be paying personal income tax on the ETV, but then I'd be paying an equivalent amount less from the business. At least to me, it seems functionally the same as if Amazon gave me the ETV amount in cash for services rendered, and then I used that cash to buy that same product for the business, i.e., it's a business deduction. What do you think?

For a little context, we've been having this discussion on a Reddit forum devoted to Vine, and several people claim it's a free product, and therefore, you can't deduct something that cost $0. My position is that it's not free, because we're exchanging a service to get it, and it's therefore compensation with a taxable value, it just happens to be in a non-cash form.

Not A Product Question

J

JulieS

No, you would not be allowed to deduct the value of the items you converted to business use. Your reasoning is sound, but IRS Publication 535 says:

"Payments in kind. If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. You cannot deduct the cost of your own labor.
Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you." Click here to see more.

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J

justme11Author

Thank you for your answer. If I could ask a followup question by changing the scenario a little:

Would your answer change if I personally received the item, and then subsequently converted it to business use? That is, if I'm using Amazon Vine as a hobby; receive the item for personal use; reviewed it while it's my personal possession; and only convert it to business use after all that. I'd pay personal income tax on the ETV, as stated by Amazon, which is based on FMV. Could that then be considered the depreciation basis for business use, for which I could take bonus depreciation of 100% in 2022 (or 80% in 2023)?

J

jtax

Employee

I don't think that there is any tax difference between you as an individual and you as a Schedule C sole proprietor. You don't need a bank account or EIN to operator as a sole prop. There is no legal difference. If the item is given to you and you use it as a sole prop, it is being used in the business and could be treated as being given to the business.

A corporation or LLC would be different (not sure about disregarded entities like single-member LLCs).

@JulieS love the pub quote, but when it says you can only deduct what the product "cost you" does it mean purchase cost or basis? Does the fact that the receipt of the item is taxable income increase one's basis in the item? perhaps we need actual law and not just a publication.

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