Bartering is the trading of one product or service for another. Usually there is
no exchange of cash. However, the fair market value of the goods and services
exchanged must be reported as income by both parties.
Here are four facts about bartering that the IRS wants small business owners to
be aware of:
1.
Barter Exchange A barter exchange functions primarily as the
organizer of a marketplace where members buy and sell products and services
among themselves. Whether this activity 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 their clients
or members and to the IRS.
2.
Barter Income Barter dollars or trade dollars are identical to
real dollars for tax reporting. If you conduct any direct barter - barter for
another's products or services - you will have to report the fair market value
of the products or services you received on your tax return.
3.
Taxes Income from bartering is taxable in the year it is
performed. Bartering may result in 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.
4.
Reporting The rules for reporting barter transactions may
vary depending on which form of bartering takes place. Generally, you report
this type of business income on Form 1040, Schedule C Profit or Loss from
Business, or other business returns such as Form 1065 for Partnerships, Form
1120 for Corporations, or Form 1120-S for Small Business Corporations.
For more information see the Bartering Tax Center in the Business section at
http://www.irs.gov.
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