How Social Media Influencers are Taxed
Being a social media “influencer” or whatever the heck a “content creator” is can be a lucrative endeavor, but are all those “gifts” you receive or feature in your selfies taxable?
Harsh Truths
Influencers have it really hard to begin with, and I don’t want to kill any social media darling’s buzz. Still, I thought it might be prudent to discuss some harsh truths about getting money for nothing (and their “gifts” for “free”) — just in case you were thinking about getting into the social media influencing gig economy.
In this article, I will try my very hardest to not cast aspersions against any one influencer in particular (mostly because I know so few, but, also, I have been told that one shouldn’t hate the player when the game is to blame…or something like that).
Nonetheless, there are some practical tax considerations, and isn’t that why you clicked on the article 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 article) 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), but these were supermodels bolstered by runway success and perfume commercials…not to mention that Cathy Ireland did a more than 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.
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; and
· a following in a distinct niche, with whom he or she actively engages. The size of the following depends on the size of his/her topic of the niche.
A 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 .001% 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.
Inspiring, isn’t it?
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? 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?
Gifts, according to the Supreme Court are the result of “detached and disinterested generosity.” They are often given out of “affection, respect, admiration, charity or like impulses.” Notably, a brand-new Corvette “given” to the Superbowl MVP quarterback Paul Hornung was not a gift either…so sayeth the Supreme Court (which found the ‘vette was income).
Neither is gift a $200,000 “swag bag” given to actors nominated for an Oscar. 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.
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,”[1] 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.”[2] Awards are only non-taxable when the recipient is not expected or obligated to render future services in exchange.[3]
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 really think she earned an “award” for hawking QuickTrim diet pills?
(She did get sued for it, but that’s just karma.)
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.[4]
Bottom Line
If you or your little sister is thinking about becoming a social media darling, there are important tax considerations. If you befriend the local pizza parlor owner who gives you a free slice here and there to tweet “BEST PIZZA EVVA” every now and then, this is income.
Will the IRS come after you for the equivalent of $120 per year, likely not; however, social media influencers are often playing with much larger pieces of the proverbial profit pie.
[1] See Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955).
[2] IRC § 74(b).
[3] IRC § 74(b)(1).
[4] 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.
