In-kind Income for Streamers
Isn’t that a really, really interesting name for an article? I promise you, while the nitty gritty of this topic is boring the overall message is really important. This is an area that most streamers get wrong. Heck, most don’t even know this is a thing. Think about what that means. You can do better than most other streamers!
Let’s dive right in lest you fall asleep before you get to the meat of the matter.
What is in-kind income?
In-kind income is income paid to you as a good or service instead of money. There are two basic examples of this that are highly relevant to streamers. First, if you get a game for free to promote it you’re getting a good (the game) in exchange for a service (promotion to your audience). The second common example is where you barter with someone to trade services. This could be trading your video editing skills for someone’s writing skills or emote design skills. The basic idea in both is that no cash is exchanged but value is exchanged. Imagine someone came to you asking you to promote something to your audience or to hire you for video editing. You’d charge them, right? This is the same just without cash.
Unfortunately, since you’re running a business and trading value for value you’re generating taxable income. That means you need to report it to the IRS. They don’t look fondly on businesses that don’t report all of their income. They’re certainly not a group you want to have looking more closely at you.
It is possible that an exchange of good or services doesn’t count as taxable income. The important part of this is if the exchange is intended for business. If you’re like me and have a sick cat you need someone to medicate him when you’re gone over the weekend. It’s not a fun job. Often, we’ll give friends/family a bottle of wine or something similar as a thank you. Technically you could say they’ve provided a service (cat medication) for a good (wine) but since there was no intent to be conducting business the IRS doesn’t care. It might be different if they were in the business of cat medicating but I don’t think they are.
How do I report it?
Ok so you’ve determined that you’ve received in-kind compensation, what do you do? First, if it was a game from a developer you should ask them for documentation on what they gave you. If this is a long-term strategy of theirs they should have a system in place for reporting it. That might make your life easier as you can then just use their document.
If the other party doesn’t know what you’re talking about then you should document the exchange. You might want to point them to this article as well so they don’t get it wrong going forward. Write down what you got, what you gave, and the market value for each. While it may be hard to determine the market value for some services you should still make an estimate.
Regardless, the transaction goes on your business’s profit and loss statement. You add both income (what you got) and an expense (what you paid) which in theory should cancel out. It’s possible that one party places a higher monetary value on what they gave but as long as you’re in agreement on the exchange and document it similarly you’re in good shape. Eventually, your profit and loss makes it over to the Schedule C.
Do I care?
For a lot of the barter stuff, probably not. Those are really hard for the IRS to catch. I’m not advocating that you intentionally exclude them but if you’ve accidentally not reported that income because you didn’t know there’s little reason to panic. On the other hand, game companies (and bigger companies in general) should be keeping track of and reporting on the in-kind income they pay. That may mean that if you don’t report it someone else is. Again, not a reason to panic but a reason to do your due diligence.
The bigger reason to care is the overarching theme of this blog. You should care because minding these kind of details is key to running a business well. You can totally succeed by wandering blindly. It will probably be harder and have greater odds of failure, but it’s possible. Being an intentional, thoughtful business owner should yield greater results over the long term. Is this an over dramatic point to draw from one, boring part of the tax code? Yes! However I still think it’s quite important for you to consider.
Even if you outsource your business management that means you’re taking care of it. A smart business owner knows their strengths and weaknesses. If this isn’t your thing then it makes sense to outsource it and keep doing what you do best.
The most important best practice is luckily pretty simple. Document what you do! Work with the other party to agree upon a value of what you’re exchanging, in writing. Document the exchange in your accounting system with an entry for the income and the expense.
My next best practice is something that I harp on a lot, but get accounting help. Get software in place and an accountant who knows the basics of your business. They can give you guidance on these kinds of things.
This is a pretty in-the-weeds topic but it’s something you should keep in mind. You’re a business owner and you should make sure you’re taking care of business. When you do get an opportunity for in-kind income you should evaluate it using your predetermined system, document the outcome, and move on with your life. You can sleep safe and sound knowing that the IRS won’t come after you for missing this common issue. Well done!
If you have questions on this or other topics you’d like me to cover, leave a comment below!