Content creators often receive PR packages, gifted products, and free samples from brands. While these items may feel “free,” the IRS may treat PR packages, gifts, and brand trips as taxable income. If you’re a content creator wondering whether you have to pay taxes on PR, gifts, or samples, here’s what you need to know.
Here is what you need to know about your tax liability for gifted products and how to determine when they are taxable!
What Gifted Products Are Taxable for Content Creators?
Gifts can fall into two categories for creators. The first is a genuine, unsolicited gift from a brand with zero expectation of you posting about it. The brand literally asks for nothing in return. This is a gift that isn’t considered taxable.
More commonly, brands send gifted products in exchange for your services. They expect you to create a post about their product or service that will appear either on your accounts or the brand accounts. This type of gift is considered Barter Income and is taxable.
Barter Income can include brand trips, products for review, compensation in kind (when a brand “pays” you in product for sponsored content), and PR packages and products sent with the expectation you will create content about it.
If any single business provides you with $600 or more in cash income or products, they will likely report that to the IRS and send you a 1099 at the end of their tax year, so it is important to stay on top of tracking these items. As with all other business income, even if you don’t receive a 1099, you are required to track and pay taxes on items you receive.
How Should Content Creators Report PR, Gifts, and Samples on Their Taxes?
When it comes to gifted products, you are expected to claim the fair market value of the product. According to the IRS, that is the price of the product at the time the company or brand gave you the gift.
It’s important to track the value of any packages and products you receive, just as you would income. You can use a separate line item or spreadsheet column to track “Value” as opposed to cash income. When tax season rolls around, you’ll know exactly how much you need to report from gifted products.
You will want to be clear on exactly how much cash income you receive, because you can’t pay rent or other expenses with PR packages or free products. Your content creation business needs to bring in enough cash to support you (unless you have other reliable income sources). It’s important to determine if the gifts are worth adding to your income based on the tax you’ll pay on the gift.
You’ll include the value of gifted items as part of your income on your tax forms — just add it to your cash income for the year.
How Can I Figure Out the Value?
The IRS uses fair market value (FMV) to determine the taxable amount. Brands may provide you with the value, but you may also just calculate it on your own. If you receive a free subscription box to review on your channel, the FMV would be the amount subscribers would pay for the box.
If you are given a swag bag containing products and vouchers for services, the bag may also contain a card totaling the value, or you may need to look up each item and see what the retail cost is.
The timing of the gifted product can also affect the FMV. For example, the regular MSRP for a product can be $100. However, the company contacted you to promote the product during a 50% off sale. That means the product they sent was worth $50 at the time and that is the amount you claim on your tax return.
Conclusion
Freebies and perks are awesome — just remember that nothing in life is really free. These PR giveaways are often a part of your overall income, and you will need to track and report them each year. But as long as you stay on top of tracking throughout the year, you shouldn’t be hit with any big surprises come tax time.
If you’re a content creator receiving PR packages or gifted products and want help tracking and reporting them correctly, book a call to see how we can help with creator-specific bookkeeping and taxes.