Swag Isn’t Really Free, Says the IRS

Got swag? The IRS wants to know about it.

That’s right. Swag, apparently short for “stuff we all get,” must be reported on federal income tax returns. The taxable income reported should be equal to the fair market value of what’s in the gift bag.

Why don’t the goody bags count as gifts rather than income? The TaxProf Blog says, “These gift bags are not gifts for federal income tax purposes because the organizations and merchants who participate in giving the gifts bags do not do so solely out of affection, respect, or similar impulses for the recipients of the gift bags.”

Although you weren’t likely one of the “lucky” recipients of an $85,000 Oscar swag bag, you could still get hit up by the IRS. According to Reuters:

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.

So that iPad you won in a raffle? You most likely need a 1099 tax form for it. Cheaper “gifts,” under $600, typically fall under the $600 required reporting amount for 1099s, Reuters said.

If you’d rather not deal with the IRS and its 1099 forms, you have a few options:

  • Just say no. Refuse the gift.
  • Redemption. If you are the recipient of a gift certificate or trip voucher, it only counts as taxable income when it’s redeemed. So if you hold it until it expires, you don’t have to report it.
  • Donate it. You can give it away to a qualified nonprofit organization. While you’d still have to report it as income, you’d be able to count it as a charitable deduction.

As long as you don’t ignore the gifts, you won’t have the IRS hounding you.

What do you think about the IRS taxing these so-called gifts? Share your comments below or on our Facebook page.

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Comments & discussion

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  • Selena Barton

    Donating will only count if you can itemize. Having worked in a tax office, I noticed most can’t do better than the standard deduction so the donation would never count.

    This also sounds a bit misleading because the quotes from Reuters are not something labeled as gifts but considered gambling. The IPad win from a raffle is a gamble. Even if its a church raffle, it gets treated like a lottery gamble. (Thus you cannot deduct the entry cost unless you can itemize deductions, and it would be a gambling loss only deductible up to the amount of the winnings. The cost to enter the raffle is not a donation.) These would typically trigger W-2G for gambling winnings and not the above mentioned 1099.

    I think something that would have been nice to mention though is the “employer gifts” like are done around holidays: “If your employer gives you a turkey, ham, or other item of nominal value at Christmas or other holidays, do not include the value of the gift in your income. However, if your employer gives you cash, a gift certificate, or a similar item that you can easily exchange for cash, you include the value of that gift as extra salary or wages regardless of the amount involved.” (Pub 525)

    Articles like this where it just states “you can donate and deduct that” causes a lot of confusing for those that don’t know the details. I spent time with several clients trying to explain that they couldn’t take gambling losses just because they played and that the charitable donations don’t come off unless they can itemize. (Please also note that receipts/proof of cost for entry is necessary to take the loss against the winnings if the IRS comes back to audit so that the deductions can be proven.) It leaves them thinking they can do a lot more than what they can because there are no limitations noted.