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Question

Business income vs Hobby income vs Misc/other income. Also Amazon Vine Program.

Forum|Forum|4 years ago
October 27, 2021
7 replies
1 view

Is there a "benefit" to counting something as Hobby or misc/other income vs business income? Or are these simply different categories to list different sources of income?

From what I understand, any income that you make needs to be reported to the IRS and you need to pay taxes on it regardless.

I am self-employed and work remotely, but this year I was invited to take part in the Amazon Vine program. As you may already know, Amazon Vine is a program where you are given a list of items that you can request for. The requested item is sent to you and you then review the item. In 6 months, the item becomes yours. However, while they are "free" items, you still need to pay the taxes of those items. They calculate the value of the items based off of the "fair market value", which I don't totally understand, but I get that this is how the amount is estimated.

From the Amazon Vine Help page, "You will receive your 1099 form by January 31st only if: you received over $600 in payments OR if there were any taxes deducted / withheld from you." But I understand that even if I received less than $600 worth of items, I still need to report that "income" to the IRS.

I don't do any deducting for business expenses ever, so for my situation I don't think there's any "benefits" in claiming it as hobby or misc/other income vs business income.

From reading other threads on this, many people want to claim their amounts from the Amazon 1099-Misc as "hobby" income. But as of 2018, you can't deduct hobby expenses. I don't know what you would even deduct as a hobby expense for the Amazon vine program since you receive items and not money. I joined the Amazon vine program for fun and to see how it worked. This is definitely not a business for me, and would probably be a hobby based off of the information from this link:
https://turbotax.intuit.com/tax-tips/small-business-taxes/when-the-irs-classifies-your-business-as-a-hobby/L5NClTTtK

To sum up, I could use more information about the differences between the types of incomes and why it matters to distinguish between them. Also if there are "benefits" to claiming income as one vs the other in situations where you can choose. If I claim my Amazon vine "income" as a hobby, I've also read that the IRS will send you an audit to verify that it's a hobby, which sounds scary and makes me want to just claim the income as a business even if I don't consider it to be one just so I don't have to worry about dealing with that (especially if I don't see any benefits to claiming it as a hobby or misc/other income).

Thanks in advance!

John-H2021

Hello Takineko,

To be considered a business you must be doing it with the intent to make a profit and file the income and expenses https://www.irs.gov/newsroom/earning-side-income-is-it-a-hobby-or-a-businesson a schedule C and pay tax plus the 15.3% self employment tax on the profit.

If it is truly a hobby then the income gets reported as other income and no expenses can be taken, you pay regular tax on the income but no self employment tax.

Here is are a couple of links to articles on hobby versus business income

https://turbotax.intuit.com/tax-tips/small-business-taxes/when-the-irs-classifies-your-business-as-a-hobby/L5NClTTtK

https://www.irs.gov/newsroom/earning-side-income-is-it-a-hobby-or-a-business

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takinekoAuthor

Hi John,

That first link doesn't appear to work for me. Getting a 404 on the IRS site for that link.

Am I correct in understanding that you're saying that the "benefit" for claiming it as a hobby would be that I don't have to pay the 15.3% self employment tax on the "profit". In my case, it would be me claiming the Amazon Vine thing as a hobby, and then I would pay the "income" as other income and pay regular tax on it but don't have to pay the additional 15.3% of that because it is not a business income?

My only concern now would be how I would prove to the IRS that it's a hobby? What documents would I need to prove it? From the link you showed are the questions I would need to consider if this was a hobby:

"Do you put in the necessary time and effort to turn a profit?"
What would that even mean? I'm getting items fore free which would be my profit I guess? But I don't know what the necessary time and effort for this would be. I'm writing the reviews for the item as I would normally write a review for Amazon on an item that I liked or disliked in particular.

"Have you made a profit in this activity in the past, or can you expect to make one in the future?"

This is my first time trying this out, and I'm still unclear about if getting an item is a profit since I'm not spending any money to get the item besides in taxes.

"Do you have the necessary knowledge to succeed in this field?
I'm writing reviews on these items, so I guess I would have knowledge of the item and it's applications enough, but I don't know what it would mean to "succeed in this field" for this particular case.

"Do you depend on income from this activity?"

I do not.

"Are your losses beyond your control?"
I don't think there's any losses, let alone any beyond my control, again due to the income being "items" with some market value. So I am not spending anything, and therefore cannot have any losses?

jobejobie

OM! Great conversation!

Reesecup52

I also received a 1099-NEC from Amazon. When I was entering my taxes with online TurboTax, I noticed when I searched for form 1099 – NEC, it asked to jump to the form and asked if I received a 1099-NEC and I clicked yes and added it. It then asks about who paid me and how the federal ID number was formatted, along with the other questions of what the reason for receiving the form 1099-NEC. Then it asks about uncommon situations that apply and one of the reasons is “this is not money earned as an employee or self employed individual, it is from a sporadic activity or hobby (this is not common). So my question is, should I be entering the information under the form 1099-NEC or under the less common income stated as hobby income? I feel like entering it under the 1099-NEC gives more opportunity to tell that it’s from Amazon and still can state it’s hobby income.

Deb4now

You mentioned it would be hard to prove 40,000 you didn’t make a profit etc but I’m sad to say that vine sucked me in and I didn’t realize and to date they show I have items estimated taxable value of 63,000. Now the sellers offer coupons for substantial amounts off but viners don’t get to use those. The way it’s set up is a separate web page with the items we can request. When I say that I have decorated my house I have. I don’t understand how this is income. Maybe paying sales tax but Amazon puts the item as purchased with an amazon gift card. It’s confusing and I can say the 6 month rule is you cant sell or give away before 6 months. I’ve not sold anything. I’ve been unemployed disabled and I started doing this for fun. We got new mattresses , furniture, decor and more but I needed it all and otherwise would not have been able to get these things. I just hit 6 months and I did donate a lot of items to a shelter for kids in crisis. Hundreds of dollars worth of items. Bedding ,mattress, bed frame, toys . This should be a write off too no?

SmallCow

I know you don't consider this as income, but the IRS does. We are required to file our taxes and report the amount according to the 1099-NEC reported by Amazon. Disability income is taxable over a certain threshold when you have other income like Vine.

You should refer to the IRS 1040 instruction booklet, then to the tax bracket in which it places you, and immediately make arrangements to pay the IRS. They can garnish disability income for unpaid taxes and bankruptcy doesn't write off your tax debt. I'm also on disability and have kept my taxable amount of products under $600 to avoid having to file at all. Social Security may also consider it to be substantial gainful activity so it might be a good idea to opt out of the Vine program. Lastly, write offs are not allowed for hobby income, per the IRS.

Someone stated, incorrectly, that this is bartering income. It's not. Bartering is reported on a 1099-B form and that doesn't apply here. We're issued a 1099-NEC by Amazon and the IRS states where that is to be reported: "If you're not an employee of the payer, and you're not in a self-employed trade or business, you should report the income on line 8j of Schedule 1 (Form 1040)." We're all concerned, but the most important thing is that we report it. Failing to file when required, failing to report the income, or under-reporting the amount are things that will absolutely get you in trouble.

Kabake8

One of the stipulations of participating in Vine is none of the products received can be gifted or sold for 6 months and by that time their ‘value’ as far as re-sale has significantly decreased or is non-existent therefore I don’t see this as being a potential source of income

Renigma

For the 2023 Tax year, I filed my 1099 NEC from Amazon Vine under "Hobby Income". I did this because:

1. It's not Self Employment income. I'm not going to pay SE tax rate.

2. A tax agent verified with me that it is sporadic/hobby income.

We make no money from Amazon reviews. We can't sell the items for at least 6 months. It's not Self Employment. But if you want to pay a higher tax rate, you can file it under self employment. You won't be wrong in doing so. But neither will those of us that filed it as hobby income.

russellmm

It is interesting how everyone sees Amazon Vine differently.

We are new to the program in 2023 and we are going to:

1. Treat it as SE income (Schedule C)

2. Take advantage of the ability to charge off some of our health care we pay for against it

3. Put money ~92% (up to IRA limits) of the income into an IRA to offset the income taxes

Renigma

I would be very very careful about filing Vine as SE and then taking healthcare deductions. That alone, may trigger an audit. And I don't see why it's so "interesting" to see how viners file and report their 1099 NEC. Ultimately, you have 2 choices. File it as self employment or Hobby Income. Why make it more difficult? Tax rate on SE is Higher, so it makes sense to me to follow my CPA's advice, and file under Hobby. Which I did, and already received my refund.

Renigma

I'm not sure where you heard that filing your 1099 NEC from Amazon Vine voices program under "Hobby Income" leads to an IRS Audit.

I filed mine as Hobby Income my tax agents advice, TurboTax tax agent and veteran Viners, and did not get flagged for audit. I've already received my refund. My 2023 Vine 1099 NEC was $7,900. It is not SE income and you can't deduct expenses from it so you should be assured that hobby income is not the wrong way to go. But it's everyone's own personal choice to determine what fits their tax situation, best.

Stablenut

Hi! I haven't filed yet, so researching how to do this (and why a specific way to file). I've never filed a hobby before. Are there any ways to counter the reported value (income) that Amazon provides? If it's filed as SE income, why can't there be any expenses deducted? It takes a lot of time an effort to manage a Vine program. I realize there is no capital outlay for purchasing items. However, I have purchased tubs and a filing system for each item in the tubs, because it's overtaking my house; and also the cost of a storage shed until I can rightfully sell the items, put them in auctions, etc., after using and reviewing. New at this, so questions and answers are not obvious to me yet. Thanks for any input. If there is no expense offset, then it's going to be WAY more expensive in taxes than I wanted, because I would never purchase most of the items outright. Also, I am retired, and live off SS and savings. Up til now, no taxes due.

Renigma

I don't know about receiving an IRS audit based on a filing of Hobby Income. Not saying that it's not happened to some, just saying I've not experienced that. I filed hobby income last year, intend to do so again this year. But as I stated in other responses I've given on here, I intentionally held off on my 2023 filing until I received confirmation that I was comfortable with, that for my personal Tax situation, filing as Hobby Income is not "incorrect". I file married jointly, husband is Self Employed, so we file a schedule C for him. For my Vine 1099 NEC, I file HI. I don't run it like a business, therefore I'm not taking ANY deductions for office equipment, office space, computer, etc. If you're wanting to claim expenses or deductions then hobby income is not the way to go. I can say that after speaking to multiple CPA's, IRS agents , AND THE Vine Veteran (what I mean by that is a Veteran Viner who has been doing this since the inception of the Vine program) I was and am, very comfortable with my Hobby Income filing. This has been a long heated debate and still, after many years and many Viners offering a variety of advice and suggestions, I personally believe that as Viners , our 1099 NEC, can be legally filed as Hobby Income. But not everyone will agree with me on that . All I can tell you is that it's how I've been filing, and how many Veteran Viners I know, file. As long as you are NOT trying to take any deductions for expenses, it's perfectly legal to file as HI vs SE.