Bartering is a great way to get an item or service without spending any money. You simply make a deal to trade your time or something you have to someone for their time or something they have. Sounds simple, right?
Bartering is simple and is the oldest form of commerce. Most people learn to barter as small children. Think back to trading toys with playmates or swapping lunch items with the kid across the table in the school cafeteria. These agreed upon exchanges provide a win-win for both parties. There is a problem, however…
Although it’s a simple concept and people barter all over the world every day, at least in the US, your bartering may be taxable. According to a recent newsletter sent out by the Internal Revenue Service (IRS):
“The IRS reminds all taxpayers that the fair market value of property or services received through a barter is taxable income. Both parties must report as income the value of the goods and services received in the exchange.”
So how does this work in real life? If you trade babysitting to your neighbor for yard work, is that reportable? What about trading furniture you no longer need for an appliance? Should the fair market value of the service or item received be reported as income by both parties?
Barter Is Considered Money For Tax Purposes
The fair market value of any type of barter is considered the same as real money for the purpose of tax reporting and is taxable during the year in which it occurs. Depending on the type of barter, you may owe one or more of the following taxes: income, self-employment, employment and/or excise.
If you’ve arranged your own barters, please consult your tax preparer about what is reportable. If you’re a member of a barter exchange, you should receive a 1099-B that tells you what to claim on your tax return. If you own a small business, you may be able to deduct certain bartering expenses, as well.
While the IRS seems focused on bartering that occurs between small businesses and/or the self-employed (examples given reference an attorney, dentist, plumber and landlord), the IRS clearly sees all barter as taxable. For more detailed information on how bartering may affect your tax liability, see the Bartering Tax Center on the IRS.gov website.
Please note: This information applies to the US only. If you live outside the US, check with your own tax authority on whether your barter activities are taxable.
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