Bartering is an exchange of property or services.
You must include in your income, at the time received, the fair market value
of property or services you receive in bartering.Bartering occurs when you exchange goods or
services without exchanging money. An example of bartering is a plumber
exchanging plumbing services for the dental services of a dentist. You must
include in gross income in the year of receipt the fair market value of
goods or services received from bartering.
Generally, you report this income on Form 1040,
Schedule C, Profit or Loss from Business or Form 1040, Schedule C-EZ, Net
Profit from Business. If you failed to report this income, correct your
return by filing a Form 1040X. A barter exchange is an organization with
members who contract with each other (or with the barter exchange) to
exchange property or services. The term does not include arrangements that
provide solely for the informal exchange of similar services on a
noncommercial basis.
The Internet has provided a
medium for new growth in the bartering industry. This growth prompts the
following reminder: Barter exchanges are required to file Form 1099-B,
Proceeds From Broker and Barter Exchange Transactions, for all transactions
unless an exception applies. Refer to Bartering in Publication 525, Taxable
and Nontaxable Income, and the Form 1099-B Instructions, for additional
information on this subject. Persons who do not contract with a barter
exchange or who do not barter through a barter exchange, but who trade
services, are not required to file Form 1099-B. However, they may be
required to file Form 1099-MISC. If you exchange property or services
through a barter exchange, you should receive a Form 1099-B. The IRS also
will receive the same information. If you receive income from bartering, you
may be required to make estimated tax payments. Refer to Form 1040-ES
, Estimated Tax for Individuals, for more information.If you are in a trade or business, you may
be able to deduct certain costs you incur to perform services that you
barter.
Almost anything you receive as compensation in
exchange for services is taxable. You can receive income in the form of
money, property or services. Generally, an amount included in your income is
taxable unless it is specifically exempted by law. Thus, you are generally taxed on income that is
available to you, regardless of whether it is actually in your
possession.
For example, if you have a valid check that you received or that was made
available to you before the end of the tax year it is considered
income constructively received in that year even if you do not
cash the check or deposit it to your account until the next year. To demonstrate further, if the post office tries to deliver a check to
you on the last day of the tax year but you are not at home to
receive it, you must include the amount in your income for that
year. Additionally, if a valid check
was mailed to you so that it could not possibly reach you until after the
end of the tax year, and you could not otherwise get the funds before the
end of the year, then you include the amount in your income for the next
year. So if you agree by contract that a third party is to
receive income for you, you must include the amount in your
income when the third party receives it. Also if you and your employer agree that part of your
salary is to be paid directly to your former spouse, you must
include that amount in your income when your former spouse receives it. Generally, you must include in gross income
everything you receive in payment for personal services such as
wages, salaries, commissions, fees, tips, fringe benefits and stock options. Generally, you must include in gross income
everything you receive in payment for personal services such as
wages, salaries, commissions, fees, tips, fringe benefits and stock options.
