Win or lose, Oscar award nominees must pay up
For many celebrities, award shows mean more than walking the red carpet and the opportunity to showcase their talents. It also means free stuff, and lots of it. Recent reports indicate the swag bags many will receive at the Academy Awards are worth at least $100,000. That’s not all. The gold statue winners receive is a made of bronze and plated in 24 karat gold, giving it a value of a few hundred dollars. Celebrities may even receive dresses or accessories to wear for the ceremony and to keep afterward.
All these gifts could draw scrutiny from the IRS. And while gifts can be excluded from income, according to Kevin W. Martin, lead tax research analyst at The Tax Institute at H&R Block, the IRS will likely consider these “gifts” as income instead, making them taxable.
“A gift is income to the recipient if it is more akin to a reward for services rendered, or if it is made because of the incentive of an anticipated benefit of an economic nature,” said Martin. “The companies and designers providing these items to the nominees fall into this category, even if the nominees have not actually done anything specific for them.”
Likewise, prizes are not gifts, so the value of the Oscar statue itself could also be taxable income to the winners.
The bottom line could mean a tax bill reaching at least $37,000 for anyone earning more than $600,000 this year.
One way recipients can avoid paying taxes on swag gift bags is to ask that it be donated to a recognized charitable organization before they receive it. Once celebrities receive the gifts they’re liable for any taxes owed but they can donate the bag and deduct the fair market value of the products.
If they want to give any of the gifts to friends or family, they cannot deduct it as a charitable donation because it is not a contribution to a qualified charity. In fact, if the gift is valued more than $15,000, the giver must complete a gift tax return and possibly pay a gift tax.
“In this case, the gift would be tax-free to the recipient, as long as there isn’t an economic incentive for passing the gift on to a friend or family member,” said Martin.
So as far as tax time goes, it may be better to be a friend of a generous celebrity than to be an Oscar nominee.