Question on correcting the ETV on 1099-NEC, company providing goods for review will not correct form

sparkjoy
sparkjoy Member Posts: 3 Newcomer
in Income

Thanks in advance for your help with this!

I review goods for an online reseller. The value of the goods is estimated as taxable value, and that is the amount entered into the 1099-NEC form that I receive. I am required to test all goods for a period of 6 months before I can donate, give away, throw away, or sell the items. I am not paid, except in the value of the goods received.

I have 2 issues:

  1. The manufacturers inflate the ETV (estimated taxable value) of the goods so that they can write off a higher amount for the reviews. After 6 months the ETV for all items is usually 25%-30% of the ETV reported on my 1099-NEC. I have requested that the company that provides the 1099-NEC correct that value, and they have declined to do so. I need to correct my own 1099-NEC to lower my taxable "income" on my return.
  2. Many of the goods arrive in unusable condition, or break soon after receipt. As items for review are not included in manufacturer warranty programs, there is no recourse, and the goods now have 0 value. Further, the manufacturers usually cancel production as a result of the poor quality, so there is no Taxable Value. The company that issues the 1099-NEC will not adjust for this. Again, I need to be able to adjust my own 1099-NEC to reflect that no value was received. I generally lose value (time and energy) by having to deal with these poor products. I can't recover my time, but do need to correct the 1099-NEC somehow to account for the 0 taxable value.
  3. All reviewers are prohibited from donating, selling, or giving away the items received until 6 months after receipt. At this point the value is the resale value of the items following use in order to revies + 6 months of storage. This is the only income I receive from this. Is it possible to depreciate the items' ETV to reflect the actual market value that I am able to receive when selling these used goods?

How do I correct the 1099-NEC amount? Can you pelase advise me on how to address the depreciation after 6 months?

I appreciate any advice that you are able to provide. I entered into this gig not knowing how much ETV would be inflated by manufacturers. I also did not realize that the company would refuse to adjust income. It's pretty frustrating to be in the position of having a 1099-NEC with a hugely inflated value on it. I have, of course, left the gig. But I still have this crazy big 1099-NEC that has no relation to the actual value of the goods received.

I have tried reaching out to the IRS anf got caught in an AI loop. I am not able to call them due to disability (Nonspeaking). Hoping that you will be able to provide some insight as to a reasonable way to handle this situation.

Thanks for your help in figuring this out!

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Best Answer

  • MatthewD
    MatthewD FreeTaxUSA Team Posts: 622
    Answer ✓

    Hi Sparkjoy,

    You have a few things going on here. Let me address each one. I hope you find this reasonable.

    1. Reporting the income. What you have here is called a barter exchange and thus is still taxable. Report the 1099-NEC in full on a Schedule C. You are exchanging your time and resources for goods, that you can later sell for money. Think of this as the income you receive for the review, but you actually get products or goods. However, some come damaged, overvalued or worthless, so you can make an adjusting expense for the damages. DO NOT alter the 1099-NEC when you enter it. Make an adjustment as I will explain below.
    2. Expenses. If you get unusable damaged goods or overinflated goods, I recommend you add an adjustment expense. Enter the adjusting expense in the Common Expense section of the Schedule C under Miscellaneous Expenses. Use a description like, "Adjustment for damaged goods" to adjust the value. If the goods were totally damaged and unsellable, you could enter 100% of the value reported for each good. This is a subtraction from gross income on your Schedule C and lowers your taxable business income.
    3. Reporting the sales. In addition to reporting the 1099-NEC for your reviews, report the total sales on the "Tell us about your other income" page in the "Income and Returns" section as Gross Receipts and Sales. Report the value (cost) of the sold products in the Common Expense section as another Miscellaneous Expenses with a description like, "Bartered Goods Sold." Even though you did not buy the product with cash, you bought it with your time and you report the cost as an expense.

    Do not use depreciation to adjust for the overstated value or damaged. I would suggest you stay away from cost of goods sold too. Use the Common Expense section to make adjustments, as I suggested, for damaged and sold items. It actually sounds like a good gig, but you have some accounting adjustments to do to show the real value of the goods you are receiving in exchange for your time so you can report the value of the income and goods you are selling.

    Does that make sense? If you need more help, consider adding Pro Support to your FreeTaxUSA account so you can chat live with a tax pro.

Answers

  • sparkjoy
    sparkjoy Member Posts: 3 Newcomer

    Sorry, I guess that was 3 issues. Whoopsie.

  • sparkjoy
    sparkjoy Member Posts: 3 Newcomer

    Thank you so much! This is practical and clear. I appreciate your help!

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