Occasionally, I write about tax topics for other business sites. Below is a preview of an article I wrote for ByAimee & Co.
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.
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.
To be clear: you want to avoid hosting a lottery!
A lottery has three components: prize, chance, and consideration. 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?
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.
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.
Read the full article here.