Article Posted on 03/08/2019
(Summarized from Forbes Magazine) How can gifts be taxed as income? The answer is when they are not really gifts. Every year at the Oscars, there are many "free" gifts. Companies pay promoters to get their gear in gift bags. The companies pay a fee to donate the goodies. And the nominees get the stuff for free in the “Everyone Wins” nominee gift bag. Everyone wants celebs to show off their gear, so companies write off the cost. However, celebs have to report it as income, and the tax bill can be considerable. So the IRS wins too.
This year’s Oscars swag bag has 53 items—down from 56 in 2018—with a value of over $100,000. The bags are not officially endorsed by the Academy, but official or not, they are hard to ignore. This year's bag includes a week-long vacation in Greece, a luxury small-ship adventure to Iceland, the Galapagos, the Amazon, Costa Rica or Panama (valued at up to $20,000 per person), a all-inclusive week-long wellness retreat in San Marcos, California, an annual membership to an exclusive cannabis-friendly social club, private therapy sessions, a set of 15 luxury false eyelashes, and a Yeti cooler filled with Jarritos. All sorts of products benefit from celebs giving them a try.
It is all taxable, even if it is not provided in cash. Cash can feature at the Oscars too. Women’s Wear Daily once reported that Meryl Streep cancelled a Chanel custom couture creation after the fashion house refused to pay her to wear it to the Oscars. The $105,000 couture dress was already in production when Streep's team allegedly said, "Don’t continue the dress. We found somebody who will pay us." A representative for Ms. Streep denied that claim, saying it is against Ms. Streep's personal ethics to be paid to wear a gown on the red carpet. But stories of pay to play continue.
The Daily Mail once noted that it is not uncommon for celebrities to make money by wearing gowns, jewels, and accessories for big awards shows. Some have been reported to receive up to $250,000 to wear a dress on the red carpet. Swag or not, if a celebrity is paid to wear a dress to an event, can they just pocket the money, or is it taxable? Like just about everything else, the IRS gets its cut. And while the practice may not be widely discussed, there's little doubt that designers paying the fees should issue the stars an IRS Form 1099 for the fee
Celeb or not, if you get a gift bag, you have taxable income equal to its fair market value. Can’t you argue this was a “gift” so it isn’t income? Hardly. These merchants don’t give them solely out of affection or respect. And though the value of these goodies really isn’t pay, you must report it on your tax return. In case any attendees forget, they receive an IRS Form 1099 reporting it.