COLUMN-Taxable swag: If you got free goodies, the IRS wants to know
(The opinions expressed here are those of the author, a columnist for Reuters.)
By Amy Feldman
NEW YORK, March 28 (Reuters) - You might be able to score a free lunch these days, but get anything beyond that and the Internal Revenue Service may come after you for taxes.
Lucky enough to score an $80,000 goodie bag at the Oscars? You'll owe something in the neighborhood of $26,400, if you're in the 33 percent tax bracket. Won an iPad in a raffle at a conference? That would be more than $100.
Stuff We All Get, known to most as "swag", comes with no direct price tag to you. We all score a few promotional t-shirts or pens every now and then, and while you may think they're gifts - or, worse, utterly useless junk - they're not gifts for tax purposes since they weren't given to you out of sheer generosity. Instead, those so-called gifts are taxable income in the amount of their fair market value, and you need to report them to the IRS and pay the appropriate tax on it.
"People go to events all the time, and if you go to an event for your job and get certain swag, it affects you," says Lisa Greene-Lewis, a certified public accountant at TurboTax .
The rules on swag aren't new. In fact, as far back as 1960, the Supreme Court, in Commissioner v Duberstein, ruled that a businessman who'd received a Cadillac as a gift from a company he did business with needed to pay taxes on it. (The company, as it turned out, had deducted the value of the car as a business expense on its corporate income tax return.)
But as the value of those Oscar goody bags soared to $100,000 in 2006, the IRS took notice. As then-IRS Commissioner Mark Everson warned at the time: "There's no special red-carpet loophole for the stars."
Consider the ways you could get hit:
If you go on a golf outing, where the organizers offer a prize for a hole-in-one, and you win, you'll owe tax. And if you're salesperson of the month at your job, and get a trip to Hawaii, ditto. Even if you take home $1,000 from the church raffle, you have a tax issue.
In 2011, restaurant-equipment salesman Bob Choate won a year's supply of Shipley's Do-Nuts at a Houston Astros fan appreciation day, and got a notice from the IRS for $927.61 for taxes due, according to the Houston Chronicle. Later that year, New York Yankees fan Christian Lopez handed back Derek Jeter's 3,000th-hit ball, and the team gave him luxury seats and other goodies in return - again, taxable.
"There are some food establishments, like Chik-fil-A, where when they are opening a new store, people wait in line for coupons for free food for a year. They would have to report taxes on that, and I am quite sure that they don't," Greene-Lewis says. (The official rules for Chik-fil-A's giveaway note that the grand prize's value is $250, and that participants are "solely responsible for any applicable taxes.")
If you won a big-ticket item during the 2013 tax year, chances are you've already received a 1099 tax form in the mail detailing what you got. Little goodies like umbrellas or tote bags or USB drives, which are often passed out at conferences, generally fall under the $600 reporting amount required for 1099s (though, technically, yes, the rules cover those, too).
What if you'd rather not have the gift? You could simply say no - and refuse to accept the swag. And there is another important loophole: If you get a gift certificate or a voucher for a trip, it's only taxable once you redeem it. If that voucher sits in your kitchen junk drawer for a year and expires, as so many of these do, you don't need to do anything.
Alternatively, you could donate the "gift" to charity. If you give it away to a qualified non-profit (assuming that charity will accept what you're offering), you would still have to report it as income, but you'd also be able to take the charitable deduction for that donation, lowering your tax bill.
What you can't do is simply ignore the goodies on your tax return. (Follow us @ReutersMoney or here; Editing by Beth Pinsker, Lauren Young and Stephen Powell)