Harsh Truths
Taxing social media influencers? Way harsh, we know.
Influencers have it tough anyhow, what with having to photograph everything they eat, or wear, or sneeze on. Nevertheless, your fearless editors at Briefly Taxing thought it prudent to discuss some harsh truths about getting your money for nothing (and your “gifts” for free)—just in case you were thinking about getting into the social media influencing gambit.
In this post, we won’t cast aspersions against any one influencer, mostly because I know so few, but, also, I have been told by those more knowledgeable than I that one shouldn’t hate the player when the game is to blame…or something like that. Nonetheless, there are some practical tax considerations to being internet-beautiful, and isn’t that why you, dear readers, came in the first place?
Things I Don’t Understand
There is only one thing in the world worse than being talked about, and that is not being talked about
-Oscar Wilde
Have you ever heard of Huda Kattan, Jen Selter, or Nash Grier? (I hadn’t.)
Well, you can bet your bottom dollar (we’ll deal with gambling losses in a later post) that the IRS has. These proto-celebrities are some of the most (and I use this term very lightly) “influential” social media “influencers.”
Back in my day, public awareness of an individual was based on being talented, charismatic, and possessing some general appeal (see, e.g., The Beatles) or infamous (see, e.g., Jeffrey Dahmer), or both (see, e.g., O.J. Simpson). Nowadays, however, you simply have to be able to make yourself moderately attractive and envy-inducing with the aid of Photoshop and Instagram filters.
Understandably, before Instagram and YouTube there were those, who got by (and got rich) on beauty alone (see, e.g., Cindy Crawford and Kathy Ireland[1]), but these were supermodels bolstered by runway success and Pepsi commercials. But “content producers” and “internet personalities,” really?
As Oscar Wilde once poignantly observed, “there is only one thing in the world worse than being talked about, and that is not being talked about.” To expand this point further, the legendary “greatest” showman, P.T. Barnum, is well known for observing that there is “no such thing as bad publicity.” In fairness, Barnum also acutely observed that “there’s a sucker born every minute.”
He appears to have been looking with some foresight at both sides of the influencer/consumer coin. In homage to the men who brought us the Bearded Lady (who would have killed it on Instagram) and reminded us of the importance of being earnest, this post is for Messrs. Barnum and Wilde.
What the Heck is an Influencer Anyway?
According to one definition, an influencer is someone who has the power to affect the purchasing decisions of others because of his or her authority, knowledge, position, or relationship with his or her audience.
A comprehensive study published earlier this year observed that “[i]n 2020, a year much of the world was in lockdown, social media users grew at the fastest rate in three years to 4.20 billion.” According to the same study, 75% of internet users buy something online each month. This means that 3.5 billion people buy something online each month, with my wife contributing to .0001% of those purchases. And, for whatever reason, social media users “look up to influencers in social media to guide them with their decision making” regarding such purchases.
Moving Past My Implicit Bias
It goes without saying that I am too old (in my mind) to understand the appeal, but even I cannot argue with the fact that certain influencers have millions of followers and can garner up to $1 million per freaking post.
When Influence is Income
These direct payments are of course income, and they are taxable as such. Even the Jenners would understand this (or, at least, their team of accountants would), but what about a middle-of-the-road influencer who is flown to Capri to take a photo with a Capri Sun?[2] He or she might not have a coterie of financial advisors, accountants, tax attorneys, or voices of fiscal reason.
When is a gift not a gift, for tax purposes? The Supreme Court weighed in on this in the Duberstein case,[3] the gist of which is that gifts result from “detached and disinterested generosity.” They are often given out of “affection, respect, admiration, charity or like impulses.” Thus, when a Superbowl MVP was “given” a 1962 Corvette, all he ended up getting was unreported income.[4]
Neither is a $200,000 “swag bag” given to actors nominated for an Oscar a “gift.” The IRS came down pretty hard on the organizers of the Academy of Motion Picture Arts and Sciences, and the Oscars presenters entered into a written settlement that the fair market value of the “swag” was taxable income.
If actual celebrities are being penalized for being successful by the IRS, who in this scenario is the brace-faced, pock-marked editor of the high school newspaper who writes an editorial on privilege and its negative effect on the other 99% of the school, whose daddy wasn’t a plastic surgeon who gave them a new nose in ninth grade or began exploiting them posting videos of them on YouTube when they were THREE YEARS OLD.
A De Minimis Line?
Turns out, there is not really a limit on what can be taxed as income in these cases. A free meal from McDonalds with the hopes that the influencer will tag a selfie with “Nugz=Yumz” or some such affirmation of quality, is a type of a barter transaction for services (the tagged selfie) in exchange for property (the aforementioned nugz). In other cases, a free product intended for careful placement in a backlit beach shot is an “accession to wealth,”[5] meaning that the touched-up-beyond-recognition-and-reality influencer received something of value (in money or “money’s worth”), whether or not services were rendered.
The Award Argument
Further, despite some rather creative arguments, these products are not “awards” given in recognition of “religious, charitable, scientific, educational, artistic, literary, or civic achievement.”[6] Awards are only non-taxable when the recipient is not expected or obligated to render future services in exchange.[7]
There is an exception for certain “employee achievement awards,” but this crosses into a whole employee/independent contractor realm, and that’s a whole other ball of wax. Did Kim Kardashian actually think she deserved an “award” for hawking QuickTrim diet pills. In fairness, Kim did get sued for hawking QuickTrim, but that’s just karma in my opinion.
A Quick Note on Deductions
Just because you derive income from appearing beautiful in exotic locales on Instagram, it does not necessarily follow that your entire life is a deductible business expense. This is an interesting and unsettled area. There are certainly arguments to be made that some of these are not personal expenses, but the area of differentiating between business and personal expenses, especially when such expenses make the expending party happy, is murky at best.[8] Even when meticulous records are kept (they seldom are), the IRS is not generally inclined to allow such deductions.
Bottom Line
If you or your little brother is thinking about becoming a social media darling, there are important tax considerations. If you befriend the local pizza parlor owner, who here and there gives you a free slice in exchange for tweeting “BEST PIZZA EVVA,” this is still income. Will the IRS come after you for the rough equivalent of $120 per year, likely not; however, social media influencers are often playing with much larger pieces of the profit pie.
If you have any questions, are a budding YouTube fashonista, Instagrammer, or whatever the heck a “content creator” might be, shoot me an email at scott@brieflytaxing.com , and we can talk about your life choices potential tax issues.
Footnotes:
[1] Though she did an admirable job as Lucy Draper, the female place kicker in Necessary Roughness, though she was, undoubtedly, overshadowed by the Academy Award-level performances of Sinbad and Scott Bakula.
[2] So I made up this hypothetical, but is it really so far outside the realm of possibilities?
[3] 363 U.S. 278 (1960).
[4] See Hornung v. Commissioner, 47 T.C. 428 (1967) (finding that the dominant motive and purpose of awarding the Corvette to the player was to promote and benefit the business of the magazine who provided it to the player).
[5] See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955).
[6] IRC § 74(b).
[7] IRC § 74(b)(1).
[8] I’m paraphrasing here, the actual test is whether the activity contains “any elements of personal pleasure or recreation,” but try explaining how that yacht ride to Fiji with the CEO of the eponymous water company did not contain any elements of personal pleasure or recreation. I’m looking at you, Jenner.
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