Lately I’ve noticed that whenever I watch a game or reality show with a cash prize, I get a little more engaged in the outcome in a way others most likely don’t. At the end, rather than just enjoy watching contestants celebrate that they’ve won what could be a life-changing amount of money, I find myself doing mental calculations of how much the winner will actually get as part of their cash prize after taxes. This is probably (definitely) a function of where I work.
After the Super Bowl there were several news stories about the tax implications of Tom Brady “gifting” the car he received for being selected as the game’s Most Valuable Player to his teammate, Malcolm Butler. That part didn’t come as a surprise to me. However, it did make me realize there’s a whole world of taxes I’ve been neglecting to consider when I watch awards shows: swag bags.
This time of year my TV viewing schedule is marked in advance with the dates of various awards shows. I watch them all and I love them. Before the biggest nights in music and movies (the Grammy Awards and the Academy Awards, respectively), I am eager to learn (and then bemoan) what celebrities receive in their lavish gift bags from event organizers and promoters.
Somehow, despite my inclination to guesstimate taxes on TV show cash prizes, I haven’t done the same for swag bags. Maybe I just got blinded by the bling, caught up with the disbelief in how much these things can be worth. It’s hard to get past the fact that in one night, some celebrities receive freebies worth more than most peoples’ entire annual salary.
At the 57th Grammy Awards Sunday night, performers received gift bags containing all sorts of goodies, with a total value of somewhere around $25,000. You think that’s bad? Last year’s Oscar swag bag was worth a whopping $80,000!
While I would undoubtedly enjoy receiving some of these gifts, there are others that I could do without. I know the tax on these items is a drop in the bucket for some A-List celebrities but it makes me wonder if there’s an option to opt out. Do they have to take the swag bags? Is it frowned upon to decline? Is there an option to pick and choose the gifts? Ask the “givers” to donate their portion to charity?
The IRS website (www.irs.gov) features a page specifically for Gift Bag Questions and Answers, borne out of the need to clarify tax issues with gift bag giving in the entertainment industry. Prior to 2005, apparently there was not much guidance on the matter, even though a press release from the Academy of Motion Picture Arts and Sciences explains the tradition of giving gift bags has been around since the 1970s.
Here are a few of the Gift Bag Questions and Answer on the IRS website (you can view the whole list here):
Q: What are the federal income tax consequences to a person who accepts a gift bag in recognition of involvement in an awards show?
A: In general, the person has received taxable income equal to the fair market value of the bag and its contents and must report that amount on his or her federal income tax return.
Q: What about non-transferable gift certificates or vouchers for trips or personal services included in gift bags?
A: If the person accepts and redeems the non-transferable certificates or vouchers in the gift bag, the recipient must include the fair market value of the trip or personal service on his or her federal income tax return.
Q: If these are gifts, why do they have to be treated as income?
A: 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.
These don’t quite cover the questions I laid out above re: gift bag etiquette, but I can always turn to Twitter for that kind of intel.
Fulfilling tax obligations for a cash prize is one thing, but being responsible for tax on a bunch of stuff that is of little to no use to me ($10,000 for pet meals?) is a separate issue. Should I ever be offered a swag bag, I might think twice about accepting it.
Mackenzie Wiley is part of the GovLoop Featured Blogger program, where we feature blog posts by government voices from all across the country (and world!). To see more Featured Blogger posts, click here.