Do You Barter? 3 Things to Know.
October 17, 2013
Do your remember the news story about Kyle MacDonald who, through a series of online trades, bartered his way from a paperclip to a house? While some of us think, “Wow! What a deal!” Uncle Sam thinks of it as taxable income.
With the economy down, people have turned to a new way of doing business. Bartering. Craigslist has reported an increase of 80% in bartering activity on its site. More and more websites dedicated to swapping and trading are popping up. While this is a great way to save some money, get products or services you may need, or perhaps even trade up to a mansion in Bexley, there are a few things to consider.
The IRS considers bartering the trading of one product or service for another, usually without an exchange of cash. For example, a carpenter can do some repair work for a doctor in exchange for health care services. The IRS does require the fair market value of the property or services received through barter to be reported as income by both parties.
Facts on Bartering:
- Barter income. Trade dollars are the same as real dollars for tax reporting purposes. If you barter, you must report the fair market value of the products or services you received on your tax return.
- Tax implications. Bartering is taxable in the year it occurs. The tax rules vary based on the type of bartering transaction. You may owe income taxes, self-employment taxes, employment taxes or excise taxes on your bartering income.
- How to report it. How you report it will depend on what type of bartering took place. Generally, if you are in a trade or business you report bartering income on Form 1040, Schedule C Profit or Loss from Business, or other business returns. You may be able to deduct certain costs you incurred to perform the bartering.