Bartering For Dollars

  • By Lauri Paxton
  • 21 Apr, 2015
Have you ever traded services in exchange for a product or service?A professional service may trade for such things as a cleaning service, landscaping or plumbing. This is called Bartering and the IRS considers this income. If you barter, you should be aware that the value of products or services from bartering is taxable income.
A direct barter is negotiated between two people for exchange of a particular service. A barter exchange such as Green Apple Services requires a membership, but offers a variety of services to choose from such as: vacations, office supplies, professional services and restaurant meals. There is an agreement or process in place to value goods and services exchanged. The organization becomes the organizer of a marketplace where members buy and sell products and services among themselves and the service facilitates the barter in exchange for a fee.

The IRS states the following about bartering:

  • Bartering income.Both parties must report the fair market value of the product or service they receive as income on their tax return.
  • Barter exchanges.A barter exchange is an organized marketplace where members barter products or services. Some operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. Exchanges must issue a copy of the form to its members who barter each year. The exchange must also file a copy with the IRS.
  • Trade Dollars.Exchanges trade barter or trade dollars as their unit of exchange in most cases. Barter and trade dollars are the same as U.S. currency for tax purposes. If you earn trade and barter dollars, you must report the amount you earn on your tax return.
  • Tax implications.Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income, self-employment, employment or excise taxes on their bartering income.
  • Reporting rules.How you report bartering on a tax return varies. If you are in a trade or business, you normally report it on Form 1040, Schedule C , Profit or Loss from Business.
Did you receive a 1099 for your bartering services? Remember, the IRS matches all those 1099s with your tax return. So if bartering services resulted in you receiving a Form 1099-B, don’t ignore it.
Regardless if you’re using a direct barter service or a barter exchange, as a business owner you need to be mindful that you don’t barter too many of these types of services. Becoming out of balance through the use of too much bartering or couponing can cause a cash flow crunch in available money to run your day-to-day operations. Bartering is a great way to receive additional products or services, but just like a Groupon or any other type of sale, it’s important to limit your business liability to insure continued profitability.
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