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Tax Tips for Trading or Bartering Goods and Services

  • 9 August 2016
  • Author: Alexander Carr
  • Number of views: 2201
Tax Tips for Trading or Bartering Goods and Services

Freelancers do it, nonprofits do it, even up-and-coming family businesses (as well as 70 percent of all Fortune 500 companies) do it. No, it’s not falling in love. It’s trading goods and bartering services. And you may be surprised to know that it’s an entirely taxable event.

According to the IRS, in a trade or barter situation:

  • Both parties must report the fair market value of the product or service they get as income on their tax return. How you report bartering on a tax return varies. For those  in a trade or business, you normally report it on the business tax return (Form 1120, 1120S, 1065, or Form 1040, Schedule C).
  • The value of the trade equals dollars in U.S. currency for tax purposes.  If you earn trade-and-barter dollars, you must report the amount you earn on your tax return.
  • Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. 

Exchange goods or services through an online or brick-and-mortar barter exchange (an organized marketplace) and you may have additional paperwork to fill out. This includes marketplaces that use virtual currency like BizX and exchanges that use bitcoin. These barter exchanges can make trading goods or services (even vacation homes and other personal items) convenient but they are also required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, to its members each year and must also file a copy with the IRS.

If you’ve bartered or traded goods or services in the past or are interested in doing so but have questions about how it may affect your taxable income, contact us.

Image Copyright: mearicon / 123RF Stock Photo

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