Bartering Income

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Bartering occurs when you exchange goods or services without exchanging money. 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.

Income from bartering is taxable in the year in which you receive the goods or services. Generally, you report this income on Schedule C, Profit or Loss from Business Form 1040. If you failed to report bartering income on returns you have already filed, you should correct this by filing an amended return, Form 1040X (PDF), for each year involved. For information on amended returns, refer to Amended Returns.

A barter exchange is any person or organization with members or clients that contract with each other (or with the barter exchange) to jointly trade or barter property or services. The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.

The Internet has provided a medium for new growth in the bartering exchange industry. This growth prompts the following reminder: Barter exchanges are required to file Form 1099-B for all transactions unless certain exceptions are met. Refer to Barter Exchanges for additional information on this subject.

If you are in a business or trade, you may deduct any costs you incurred to perform the work that was bartered. If you exchanged property or services through a barter exchange, you should receive a Form 1099-B (PDF) , Proceeds from Broker and Barter Exchange Transactions, or a similar statement, by January 31, 2005. The Form 1099-B or other statement generally will show the value of any cash, property, services, credits, or scrip you received from the exchange during the year. The IRS will also receive the same information.

If you receive income from bartering, you may be required to make estimated tax payments. Refer to Estimated Tax for additional information.

Additional examples of bartering, and information on how to report the income, are described in Publication 525 (PDF), Taxable and Nontaxable Income.

Source: IRS.gov

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