In light of some news I received today, I think it is high time that I share some things with you that I have been wanting to for a while now.
I love sweepstakes. Most bloggers, I think, do. That is where I receive a product, take the time to truly test it out, and spend at least an hour to two hours working on a well thought out, honest review to post permanently to my site and then, per the company, give you an opportunity to win a like product offered and provided by the company. I spend countless hours promoting the sweepstakes, answering questions, choosing a winner, posting who won, tracking down that winner, choosing another if necessary, sending the info to the company and then waiting to see if a winner actually received their product. If they don’t, a whole other administrative nightmare starts and consumes even more of my time.
It is incredibly time consuming work and takes the bulk of my blog time.
But I do it for two reasons. 1) I love getting products that I would not normally have thought to look for in the marketplace and 2) there is nothing I love more than an appreciative winner! It makes me feel good to send the “You Won at ADayinMotherhood.com” emails!
But a new reality has hit me square in my pocketbook and, frankly, it costs me more to run a giveaway in the long run than the time I spend on them is worth.
Why?
Because what I am doing with companies is, by law, called bartering. And bartering, in tax terms, means that the products I am getting – even though I am providing permanent, invaluable advertising – are all subject to self employment and income tax. To the tune of 40% of the fair market value of the product.
Absorb that number for just a moment and you will know where this is going. That means that if I receive a product that sells on the shelves for $100, I – someone who was not monetarily compensated for the product – have to pay $40 to Uncle Sam. Now imagine that I am running 2 to 3 a week for a year. I have to pay 40% in tax on all of them.
Granted, I get the products so I should not be complaining. But, when you have no money and the little money you are making on a blog has to go to paying taxes on tangible items you receive and trade your time and reputation for, it is beyond overwhelming. And a defeating purpose for me.
So, I have a few options. I can charge companies 40% of the value of the product they want reviewed and sock that away for tax time {99.9% of companies will not do this} or I can turn down product reviews and sweepstakes all together to avoid using the tiny amount I do make to pay the government.
The later is, of course, my only real option. I will still be participating in group giveaways as I pay to participate in those.
And a note to bloggers: Giveaways and sweepstakes afford us an audience that we would not otherwise be able to find, and I understand that. However, we are offering an invaluable – likely – permanent platform that is benefiting the company long after the giveaway part is over. In addition, I watch as we all scramble for products to offer our readers. And yet none of us are asking for compensation on top of the product. Some of which are perishable and offer no value to our home once they are gone. But we still have to pay taxes on them!
If we banned together and required that companies that want to use our social media connections to push their names pay us the taxes that will be due on the products, we might be able to make a difference. We should not have to pay for the work we do. Essentially, by doing these reviews for free, we are paying to provide opinions and advertising. And only in blogger world does that seem to be acceptable.
I still have a chain of really great products coming in that I can not wait to share with you. And there will be some things along the way that I would pay for anyway that I will happily accept. But since any profits I am making on this blog are being paid straight to the government and are not benefiting me in any way, you will see a dramatic decrease in them featured on this blog.
I hope that you have found other things on this blog to keep your attention and that you see as valuable to you. Because I value each and every one of you!
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Thank you for your post. As a fellow blogger I have only done one of the giveaways you mention through product review, and like you say a prize for lucky readers. I had no idea of taxes incurred through these type of giveaways. I would be more hesitant to participate in this kind of sponsorship in the future, thanks again for your very informative post.
If I can help at all Dahlia, let me know! There are still plenty of opportunities I can offer readers without paying taxes!
Great article Lori! And you are right, I doubt it’s worth it!
Thank you Claire!
This is what I’ve been screaming for a long time and I’m so happy that #1) you’re putting it out there and #2) I know that you will be a strong voice in this. I think if more bloggers were well educated into taxes and what amount of press a company is getting through you for almost free when they have huge budgets to market, I think bloggers would see it different. Sorry for my poor grammar. It’s dark in here and my brain is already napping.
Thank you Bobbie!!! I hope that my tiny little post at least gets a few people’s attention!
Really good, informative post. I had no idea…
Thank you Kelly and I appreciate your reading!!
Thank you so much for posting this! I’ve been running giveaways on my blog (more so this year) and these exact same thoughts ran through my brain while doing taxes this year. Good grief!
You are VERY welcome!
I had no idea I was supposed to be paying taxes on products I receive to review on my blog. Can you shed a little light on that? Is there a link you can point me to read more about this topic? Found your through CBias. Thanks for the post!
Yes ma’am. Products received, gift cards as payment, redeemed prize points, all of that is considered income. It is something your received as compensation for your work. I do not have a direct link to a page on the IRS website but if you look up what defines income you’ll see that anything at all that is considered payment – which products are – they are sending you the product to pay for your review – has to be claimed. I have a CPA who is walking me through everything but there is also a Tax Group for Bloggers on Facebook. I’ll put the link on CBias for you!
Thanks, Lori. I guess I need to be paying more attention to this stuff. I have often thought of all the free advertising I offer large companies – especially when I see people accessing old, old reviews through search engines. I’m really going to have to think about this issue and consider it very carefully.
Yes – I have a review I did back in the first six months of blogging and it gets several page views a day. I stopped benefiting from that product long ago but the company still gets the free advertising. I had to pay $10 in taxes for the privilege.
I’ve seen where bloggers will charge for a straight-forward giveaway when no product sample is involved – for some reason, the administrative fee in that case makes more sense to companies and they will more often pay for that. But in the case of reviews, you will hear argument after argument saying that the mere exchange of money taints the review and automatically puts a blogger’s ethics in question. This offends me personally, but I understand that there are less-than-scrupulous bloggers out there whose opinions *can* be bought. The argument I have NO patience for is when people say “journalist reviewers aren’t paid by companies for their reviews!” No, of course they’re not. Because they are paid by their publication. What “journalist/professional” reviewer works for free??? But in the case of bloggers, WE ARE the publication. And the editor, and yes, the writer. We have overhead costs, and tax implications to claim the fair market value of products we receive as income. It only makes sense that we charge in order to *at least* defray these costs. Or, like you say, we end up paying to work.
This isn’t just happening with product reviews, though. It’s happening with these grand trips and brand immersion programs many bloggers participate in. Although travel is paid for, they are often not being paid for their time, provide a significant amount of lasting press for the company/event, and in the end have to claim the value of the trip as income. Again, with no quantifiable financial benefit to themselves. As you said with products that are of no value once they’re gone – what’s the value of a trip once the weekend is over?
We’ve made a lot of headway in being paid for work as bloggers, but we have a long way to go.
Though I agree on the trips, Stacey, they are written off as both income and 100% expense. Therefore the trip is a true payment for my time. I am not obligated to pay for the trip come tax time. I enter into an agreement with a company and not only is the trip a 100% expense but anything I pay out of pocket while on the trip or to get to the airport is too. I see it as an even exchange and a great way for bloggers to get something they would not normally get. As for the time to post, I see it as an adequate pay off considering the rare opportunities. If I have to pay 40% of the cost of the trip, I would not be going at all.
But your point is incredibly valid in that we – as a group -tend to undervalue our time and efforts. I wish we would all stand up and make this change together.
I have learned the Great joys of taxes when It comes to review and giveaways. I love doing what I do – and it really STINKS that we have to pay Taxes on Retail Value… (it should be a wholesale value if anything) .. That is why when I do get “Sponsored posts” and things of that nature, that monies that i make from there – go towards taxes! (and I just hope i need a new computer, thats a nice writeoff!)
Yes it is Amy! But you should not have to spend the money that you make cash paying to promote a product. That should go to manicures! LOL
I would think that if you presented it to a company wanting you to review their product in the way that you outlined above, that few would disagree and many might be willing to compensate you. As someone who has benefited from your reviews, I know that I would have no problem presenting this to our client. We would just want to make sure that it didn’t look as if we were “paying you” for a favorable review. Good or bad, we would want to know your feedback.
Thank you Jeannie – maybe you and I can work together on how best to word it so that I am not paying taxes on the reviews but am still clarifying that my opinions are my own! Thank you for commenting!
Im not a blogger, but my sis-n-law is and is very good, she’s based out of Texas “Frugally Thrifty” and does a lot of good work for us non-bloggers to help us! This is where I came across this”ur” article/post! She also does “give aways” too . I just wanted to say it was a good article/post u did, and it does suck about the taxes :( Good luck to all u bloggers out there and keep up the awesomely good work y’all do. :)
Kristi is one of my favorite people in the world! And I see that her kindness extends through her family! Thank you!
I have a policy where I won’t do a giveaway without the product first unless they are willing to pay a fee for it. I also look to find a balance between the retail value and the expenses for blogging. It is a fine line we walk…
It is a very fine line… thank you so much!
I love reading your blog! I truly appreciate all the hard work and time you put in providing your loyal followers with so much information and giveaways. I am learning and growing with the blogs I follow. I have been thinking about starting my own blog. Finding out about having to pay the taxes on products you review, and the companies not helping with that seems a little unfair to me. I will follow your blog even if you don’t continue to do giveaways. Thank you for all you do and hang in there. :-)
Thank you so much Donna! You have been here since the beginning and experienced all of the growing pains with me! Hopefully companies and PR companies and bloggers can come to an agreement so that we can continue to offer fantastic reviews and giveaways to our wonderful readers like you!! :D
I am not sure I get this. Why can’t your blog be your business? You receive income – the products you review and incur expenses, rent for your space (even in your house), internet fee, your time ($$ an hour) to where you are only paying taxes on your net income (or loss and pay no taxes).
Also, what if you donate all the products you receive? You shouldn’t have to pay a tax.
It is my business and everything is written off down to my housekeepers. But my expenses do not offset my profits. And I did donate a lot of products. To friends and relatives! LOL I am only paying taxes on my net income.
The problem is that products count as income. So if you count all of the products at FMV over the year, I have a substantial amount of “income” from just them and have to pay taxes on that. Posting about them incurs virtually no expense.
To be honest I landed on your pages because of your giveaways! Now that I’ve been a reader for a while I won’t be leaving b/c you won’t be doing them. BUT I do feel like thats a big way you catch your audience or get a lot of your new frequent blog readers. If you give them away you really shouldn’t be responsible for taxes the new person that receives them should. I know that I have to pay taxes on the item if I win one from you so thats like the government getting the value of the product in taxes from both sides? Doesn’t make sense to me but then again This whole giveaway and tax thing sucks horribly. They get ya anyway they can
Well Christie – what happens is I get one and then the company sends another one to the winner. I don’t mail the one I got. Otherwise, you are right, I would not have to claim it. And I would have a huge post office expense! LOL
I personally don’t write or promote unless Paypal has cleared. I only accept products for one event I do bc it’s about 20-30 of us who review all these products. Other than that you pay for my time/service or I move on. I haven’t done a sweepstakes bc I just thought it was too much effort and work.
Have you actually filed taxes for a year yet and ended up owing? I guess I am curious because I feel like there are SO many things you can claim as expenses to offset the income (internet service, hosting, domain name, cell phone, any digital camera/computer purchases, travel to events, business cards, etc). I know on a personal income side, when I was making about $5000 a year as a teenager, I didn’t even have to pay taxes because I didn’t meet the minimum threshold. Does the same minimum exist for small corporations and LLCs?
Wow! I had no idea bloggers had to claim those items as income. That is really too bad that it’s set up that way. It doesn’t seem fair.
Each company that sends you a product is like an employer. Unless you make $600 or more in the tax year from that employer, the income is not taxable. If they send you a 1099 tax form, then they are claiming you as an employee and yes, you owe tax on that money. But if you do a review for a product worth $25, there shouldn’t be any tax.
Elizabeth, that isn’t true. A 1099 is for an independent contractor. Whether they send you one or not, you are responsible for earnings that exceed $600 from all your sources combined. Not just from one person! That ONE person doesn’t have to send you a 1099 but you still have to report the income if your income exceeds $600. Be careful giving tax advice if you aren’t a tax accountant. I would HATE for someone to read that and then take that as gold! Always double check with a CPA before making any tax-related decisions!
Very good point, Nikki!
Nikki, are you sure it’s after $600? I’ve looked and looked and it really seems to me that the tax laws say that we have to report *any* income, no matter how small or from how many revenue streams. That includes $20 for babysitting and $50 for a blog ad spot.
I think the $600 is when a company sends a W9. As a running business, yes, every spot of income -and expenses – must be reported!
That’s my understanding, too. I was just confused by Nikki’s statement that “you still have to report the income if your income exceeds $600.” I wish it were all more clear cut! I’m nervous about finding someone to do my taxes that will actually understand! Not that I blame them! It’s all so ridiculous!
Just find someone who understands small business. I have found a financial planner to be more helpful and knowledgeable than a CPA. Where do you live?
haha! Alaska. ;) But there are a lot of small businesses here by default so I may get lucky.
Question: where did you learn this about “bartering”? The income is offset by expense and any income on your blog is self-employment income, not just giveaways. And your expenses will likely outweigh your income when you consider hosting, domain, internet, etc. Yes, giveaway items need to be reported, but it is income that can be directly offset against expenses, just as any advertising income would be offset. I noticed you didn’t link to any accountant or bookkeeper that told you this so I was just confirming your news and how it is presented to your readers. :)
At the time I wrote this I was using a straight CPA. I have since hired a financial planner who is more apt to how to offset and report correctly in this crazy world of blogging. So I am a lot more confident in my ability to handle products and income as offsetting to expenses than I used to be.
Ha! That was the fastest response ever! I’m a tax accountant and one of my friends sent this to me because they were confused and she asked if this is different than what I have explained to her before. So I was just trying to get clarification. Happy you better understand :) Nice chatting with you!
Thank you for chiming in! I am always open to opinions and am so glad you came by! With the tax world changing on a minute by minute basis, all knowledge is good knowledge!