Do You Barter?
This is Kim Lawson. I’m talking with Monica Baker about bartering income.
Q1. Monica, can you explain what bartering means, and give us an example?
A1. Bartering occurs when you exchange goods or services without exchanging money. If you barter for someone else’s products or services, you will have to report the fair market value of the products or services you received on your tax return. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of goods and services exchanged must be included in the income of both parties.
A2. People who barter should familiarize themselves with the tax requirements for barter income, and maintain good recordkeeping habits. Keep in mind that income from bartering is taxable in the year it is performed and must be reported on your income tax return.
Q2. What is a barter exchange?
A1. A barter exchange functions primarily as the organizer of a marketplace where members buy and sell products and services among themselves. Whether this operates out of a physical office or is Internet-based, a barter exchange is generally required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions annually to the exchange’s clients or members and to the IRS.
Q3. Do you have any tips for reporting bartering income?
A1. Treat barter income as you would any other business activity. You may be subject to liabilities for income tax, self-employment tax, employment tax, or excise tax. Your barter activities may result in ordinary business income, capital gains or capital losses, or you may have a nondeductible personal loss.
A2. The fair market value of goods and services exchanged must be included in the income of both parties. If you have failed to report this income, correct your return by filing an amended return such as Form 1040X.
A3. If you barter your products or services through a barter exchange, you should receive a Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. The amount shown in 1099-B, Box 3, “Bartering,” is your barter transaction’s proceeds and is generally reportable as income included on your tax return. Barter exchanges have an annual obligation to report bartering proceeds to the IRS. If you are an independent contractor, barter received as compensation from another business must be included on Form 1099-MISC, Miscellaneous Income, as “non-employee compensation.” All barter compensation for employees must be taken into account on their Forms W-2 and is subject to FICA, FUTA, and federal income tax withholding.
Q4. Where can a business find more information on bartering?
A1. For more information, go to the IRS.gov home page and type “Barter” for the Bartering Tax Center in the search box. Pay special attention to the Record Keeping for Business Barter Transactions page to find several examples of barter transactions, record keeping and tax reporting.
A2. Treat barter income as you would any other business activity. My best advice: it’s never too soon, or too late, to start good recordkeeping habits. You should keep all receipts, payment information and tax information in one location to make filing your taxes easier when the time comes. Keep good records, work with a reputable barter exchange and consult the IRS or a tax professional if you have questions.
Thank you, Monica. I’ve been talking with Monica Baker of the IRS. This is Kim Lawson.