Last night’s Grammy’s had highs and lows from Taylor Swift's sweeping the awards to Adele’s technical difficulties.
Whether you walked away with the top honor, lost, or simply served as a presenter, you probably scored big with a swag bag full of gifts worth $22,000. And do you know who else will be scoring big from those swag bags? Uncle Sam.
This year’s swag bag included trips, gifts certificates, jewelry, clothes, snacks, and other luxurious goodies all delivered in a piece of luggage to the hotels or cars of celebrities. The most expensive gift is a $6,180 “Ultimate Fitness Package” that includes 7 nights at a Hilton Head Island fitness resort complete with menus planned by a nutritionist and chef, life coaching, customized workouts, fitness apparel, and supplements.
If celebrities’ skin is starting to sag a $5,500 certificate for non-invasive ultrasound skin tightening by upscale plastic surgeons will help. There is infrared hair care equipment, custom eyeglass wear, and a 24K gold facial. And if they want to make a difference for something else in the world?
The perrrrrr-fect gift is a private tour of a cat rescue facility in Florida.
All of those ultra luxurious goodies come at a price. Anything a person receives that is over $650 triggers a 1099-MISC form from the IRS requiring them to report that as income and taxable. Uncle Sam doesn’t see these gifts as solely given out of affection or respect as we give to each other at Christmas time, but rather as marketing tools. Merchants who fill the swag bags expect celebrities to use the products and promote them –perhaps even endorse them – to their fans.
So just how much will they have to pay on the $22,000 gift bags? It’s going to depend on your tax bracket. Let’s say you’re in the top tax bracket (i.e. earning $415,000 or over as a single filer) with a 39.6 percent income tax rate, rough math suggests your federal tax bill will be about $8,712.
Other considerations may come into play which is why celebrities enlist the help of financial experts. For example, if they think they can get around a tax bill by donating to charity, they should think again. As a Forbes contributor explained about the 2013 Grammy swag bags, celebrities can’t dodge the IRS and keep the products or redeem them. Even donating them to charity has implications:
Can celebs accept gifts but then regift them to a qualified charity and claim charitable contribution deductions? Yes, but the fair market value must still be reported on their tax return… After all, with taxes, there’s no such thing as a free lunch.
Grammy veterans know the drill by now, especially those multi-talented artists in TV or movies and circulate multiple award shows: Uncle Sam always gets a cut. For the newbies who made their first appearance at the Grammy’s, I hope they enjoyed themselves and the experience. Just be prepared for the IRS to come knocking on your door.