Bartering Income Tax Tips from IRS
Source: IRS E-News for Tax Professionals, Issue Number: 2009-3, Jan.
21, 2009
Bartering is the trading of one product or service for another.
Usually there is no exchange of cash. It is the most ancient
form of commerce. Any business owner or professional who has a
product or service to offer can barter.
While our
ancestors may have exchanged eggs for corn, today you can barter
computer services for auto repair. Another example of a
one-on-one, non-barter exchange transaction is a plumber doing
repair work for a dentist in exchange for dental services. The
fair market value of the goods and services exchanged must be
reported as income by both parties.
Barter may
take place on an informal one-on-one basis between individuals
and businesses, or it can take place on a third party basis
through a modern barter exchange company.
Tax
Responsibilities
Income from
bartering is taxable in the year it is performed. The rules for
reporting barter transactions may vary depending on which form
of bartering takes place. Refer to
Tax Responsibilities of Bartering
Participants for more information about reporting
income and staying in compliance.
Home-Based Online Barter Business
If online
bartering turns into a business, or you have recurring barter
transactions and are purchasing items to barter with the
intention of making a profit, you may have
started a barter business.
If Your
Bartering is a Trade or Business
If you are
operating a viable
bartering business, you may be entitled to deduct
business expenses. Do
you have an established business and are augmenting your sales
with barter transactions? If so, include the sales from
bartering in your
business income.
Bartering Depreciated Business Assets
If you
barter business assets or
close your business
you may have
capital gains, ordinary gains
and
depreciation recapture
to report. An example is the barter of an automobile used for
business for a product or service.
Bartering Appreciated Assets
Examples of
appreciated assets often include art, antiques and collectibles.
If you have barter transactions of property where the fair
market value is more than your cost or
other basis, you
usually will have a reportable gain. These gains may be
business income or
capital gains.
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