Pay Tax on Bartering

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by Roger Chartier

Barter is doing a trade for a service or product for another.

The conversation might go "Hey Jim Whadda ya say, I'll work painting your house for that sailboat that you were going to sell."
 If it goes down then you've got a barter. Then the IRS might want a cut of the action.
So there are rules - (look below) and it is the way that the IRS gets tax income from people who sometimes really are hoping to avoid getting them involved in the deal.
Parties in similar situations often do the deal " Under the table  " as the old phrase goes.
In some places there are markets where people do bartering say for a bushel of corn traded for some baked pies.
 Your cousin might trade or a few day's mechanic work fixing cars in your repair garage for an old fixer upper pickup truck that you've got out back.
But then the long arm of the IRS wants to reach out and get in on it.
So the hammer comes down and Uncle Sam wants his pound of flesh.

Here's what the IRS says about barter

1. Organized barter exchanges
A barter exchange functions primarily as the organizer of a marketplace where members buy and sell products and services among themselves.

Whether this activity operates out of a physical office or is internet-based, a barter exchange is generally required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, annually to their clients or members and to the IRS.
2. Barter income Barter dollars or trade dollars are identical to real dollars for tax reporting purposes.

If you conduct any direct barter – barter for another’s products or services – you must report the fair market value of the products or services you received on your tax return.
3. Tax implications of bartering
Income from bartering is taxable in the year it is performed. Bartering may result in liabilities for income tax, self-employment tax, employment tax or excise tax.

Your barter activities may result in ordinary business income, capital gains or capital losses, or you may have a nondeductible personal loss.
4. How to report
The rules for reporting barter transactions may vary depending on which form of bartering takes place.

Generally, you report this type of business income on Form 1040, Schedule C Profit or Loss from Business, or other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations or Form 1120-S for Small Business Corporations.