Helena from Sweeter CPA is BACK!! She shared with us on Monday about the Tax Implications of WINNING a Blog Contest & today she’s writing to the HOSTS of the giveaway! Are you ready? Be sure to pin this post when you’re done reading… you will want to hold onto these guidelines as long as you host a giveaway on your blog!
We’ve all seen blog giveaways in our feed readers and on Twitter. They are a great way to get more pageviews for your site and get some buzz. On Monday, I explained the tax consequences for the winner and host(ess) of a blog contest. Today, I’m going to explain how to keep your contests legal.
First, some definitions:
Sweepstakes – A prize giveaway where the winner is chosen randomly. The prize can be anything you can think of, but be sure you and your winner follow the rules relating to IRS reporting should the prize be valued at more than $600. This is the most-common form of blog giveaway. Participants usually enter by leaving a comment on the blog hosting the giveaway and the blog owner uses a random number generator (like random.org) to choose the winning comment.
Contests – A contest, unlike a sweepstakes, relies on some element of merit to choose the winner. For example, you could host a contest for the best photo and reward the winner with a new camera bag. The important thing here is to make sure the method by which the winner will be chosen is clearly stated at the outset, especially if the winner is chosen in a subjective manner (e.g., “best photo” versus “fastest mile time” – chosing the best photo is subjective, awarding the fastest runner is objective).
Lottery – A lottery, like a sweepstakes, awards a prize to a random winner. The key difference is that lotteries require entrants to exchange consideration for a chance to enter the drawing. While consideration is often money (e.g., buying a lottery ticket) it can be other items of value (e.g., time). Lotteries are highly regulated with rules that differ state-to-state.
A quick note of clarification: it is legal for CONTESTS to require consideration or a fee to enter. For instance, the photos submitted for a photography contest could be thought of as consideration. However, such contests are NOT LOTTERIES because the prize is not awarded randomly. Rather, the winner is selected by whatever methods the contest host set forth at the beginning.
People tend to use these three words interchangeably, but they have very different tax and legal consequences. What you call it doesn’t matter. Calling your lottery a “giveaway” does not change the legal or tax ramifications. If it meets the definition of a lottery, it is a lottery.
To be clear: you want to avoid hosting a lottery!
A lottery has three components: prize, chance, and consideration.
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The prize is what you are offering to giveaway.
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Chance is the element of luck involved.
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Consideration is something of value.
Contests have two of these components (a prize and, possibly, consideration). Sweepstakes also have two (prize and chance). Once your set-up has all three elements, it is a lottery.
Bloggers hosting “giveaways” – awarding a prize to a randomly-chosen comment – need to be sure to avoid requiring consideration to enter.
So, what is consideration?
As mentioned above, the most-common form of consideration is money. However, the definition of consideration is not limited to cash. Legally, consideration is “something of value”. Time is valuable. Facebook Likes could be considered valuable. Tweets could be considered valuable. Requiring people to drum up pageviews for your blog could be considered value.
Why do I say “could be considered” instead of using more-definite terms? The idea that liking someone on Facebook or following them on Twitter is “consideration” is, at the moment, just that – an idea. It hasn’t yet been tested in a court, so we have no definitive legal precident to fall back on. All we can do at this point is read the rules surrounding lotteries and do our best to structure our contests and sweepstakes to avoid entering “lottery territory”.
Best Practices
To avoid your giveaway entrants from exchanging consideration for a chance to enter your sweepstakes (and, thus, changing it into a lottery), give the first entry away for free. For example, let their first entry be solely by entering a comment on your blog. Additional entries can then require Facebook likes or Tweets. As these additional entries are not required to enter the contest, you face less of an issue with consideration.
If you are hosting sweepstakes, it’s best to add certain language to your site (either on the post featuring your sweepstakes or a separate, permanent tab). Ideally, your sweepstakes language would include, at least:
- How to enter the sweepstakes (including the one free way!)
- Limit on how many entries a person can have (e.g., the free way, one for a Tweet about the sweepstakes, one for a Facebook like, etc).
- How long the sweepstakes is open.
- How the winner will be chosen.
- Eligibility:
- Generally, bloggers in the U.S. limit their sweepstakes to residents of the U.S. to avoid complications with laws of other jurisdictions. Sorry, Canada!
- “Winners must be 18 years of age as of the first day the sweepstakes opens” – participation by minors can open another can of worms, so people tend to just leave ‘em out!
It may sound like a bummer to give away the first entry in your sweepstakes for “free”. You work hard to make these relationships with sponsors and want to see some benefit. Totally understandable. However, if the content of your blog is unique and stellar and you carefully curate your giveaways, people will want to drum up business for you and share your particular awesome with the world.
Questions? Leave them in the comments or contact me here. I’ll be back on Friday with a (Proper! Legal!) sweepstakes for all you readers!
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great info!! thank you so much for sharing!
This is great information and I’m just setting up my very first give away so your timing was perfect! Thanks.