Those so-called gifts count as taxable income, and the IRS wants its cut. Even if you're a Hollywood star.
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.”
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.