Is Bartering Taxable?

Answer: Yes, bartering is considered income. In an audit, the taxman will question you about bartering & bartering clubs. An auditor really doesn’t like people that barter since it is harder for them to track down.

a). The same rules apply to bartering as does any other business transactions, for example a form 1099 is required if the value of the good/service was over $600.

b). Since some of people don’t report the value of the bartering and technically underreport their income, you can see why the Taxman does not like bartering. The best way to keep track of bartering is to have another spreadsheet designated to bartering income & expenses.

Here is What The IRS Says in a Video Links:

http://www.irsvideos.gov/SmallBusinessTaxpayer/BusinessIncome/DoYouBarter

Bartering Tax Center

Bartering is the trading of one product or service for another.

Usually there is no exchange of cash. 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.

Barter Exchanges

A barter exchange is any person or organization with members or clients that contract with each other (or with the barter exchange) to jointly trade or barter property or services. The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.

Backup Withholding and the “B” Process

Backup withholding can apply to most kinds of payments that are reported on Form 1099, including payments by broker/barter exchanges. Barter exchanges are required to issue “B” notices and are subject to performing backup withholding if barter participants fail to furnish a valid Taxpayer Identification Number (TIN).

Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. You must include in gross income in the year of receipt the fair market value of goods and services received in exchange for goods or services you provide or may provide under the bartering arrangement.

Generally, you report this income on Form 1040, Schedule C (PDF), Profit or Loss from Business or Form 1040, Schedule C-EZ (PDF),Net Profit from Business. If you failed to report this income, correct your return by filing a Form 1040X (PDF). Refer to Topic 308 for amended return information.

A barter exchange or barter club is any organization with members or clients or persons who contract with each other (or with the barter exchange) to jointly trade or barter 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 exchange industry. This growth prompts the following reminder: Barter exchanges are required to file Form 1099-B (PDF), Proceeds From Broker and Barter Exchange Transactions for all transactions unless they meet certain exceptions. 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 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 (PDF). If you are in a business or trade, you may be able to deduct certain costs you incurred to perform the work that was bartered. If you exchanged property or services through a barter exchange, you should receive a Form 1099­B. The IRS also will receive the same information.

Please refer to our Bartering Tax Center page for more information on bartering income and bartering exchanges.

If you receive income from bartering, you may be required to make estimated tax payments. Refer to Publication 525, Taxable and Nontaxable Income, for additional information.