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.
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.
- Ask TaxMama :: Where taxes are fun and answers are free
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- IRS.gov :: The Real IRS site
- IRS Publication 525 :: Taxable and Nontaxable Income
- IRS Small Business information :: Barter Exchanges
IRS Small Business information :: Tax Responsibilities of Bartering Participants
- IRS FAQs :: Bartering – definitions and information
- Transcript of IRS video :: Bartering
- IRS Small Business information :: Bartering Income – includes more links within the article