IRS Tax Tip 2011-33: Four Facts About Bartering

I receive e-newsletters from the IRS on a regular basis and thought this briefing was interesting,

The IRS wanted to send out a reminder that the fair market value of goods and services exchanged through barter is still taxable income. Here are four facts about bartering:

1) A barter exchange typically needs to issue form 1099-B to its clients or members and to the IRS on an annual basis. This form is called Proceeds from Broker and Barter Exchange Transactions.

2) Barter dollars/trade dollars mean the same thing as real dollars for tax reporting purposes. The fair market value of bartered goods or services must be reported on your tax return.

3) Income is taxable in the same year that it is performed. Therefore, you may owe income tax, self-employment tax, employment tax, or exise tax. Barter activities may cause ordinary business income, capital gains (losses), or a non-deductible personal expense.

4) Reporting barter transactions may take different forms. In general, the business income is reported on Schedule C Profit or Loss of Business on Form 1040. Other types of businesses need to report the income on Form 1065 for Partnerships, Form 1120-S for Small Business Corporations, or Form 1120 for Corporations.

For more information, you can visit the irs at www.irs.gov and search the Business section for Bartering Tax Center.