With the recession ending recently, it turns out that bartering has made a huge comeback from ancient times. According to the International Reciprocal Trade Association, over 400,000 companies bartered in 2010.
Typical examples are writers, graphic designers, and the like who design brochures, do website work, provide advertising space etc. in exchange for help with plumbing, accounting, catering, or anything under the sun.
If you are one of the thousands who have bartered in 2010, you either did so informally with an agreement between you and another business or you did so through a barter exchange service. Either way, you’ll be subject to barter income tax.
Tax on Bartering
To calculate the tax on barter, report the barter income and barter expenses:
Barter Income. Barter exchange services, such as BarterCard or CommunityConnect Trade, will issue you a 1099-B form (Proceeds from Broker and Barter Exchange Transactions form) for the value of your transactions for the year. You should have received the form by February 15.
Barter Expenses. You can deduct the costs associated with these goods or services (such as your membership fee to the barter site, your costs to make the product, transaction fees) just like you would deduct in a cash transaction. Include the information on this form in your Schedule C or Schedule C-EZ (Form 1040).
If you have bartered informally without using a service, then you will still need to report the market value of your transactions as your income on Schedule C or Schedule C-EZ (Form 1040). The fair market value to report is the value both you and the other party to the transaction have agreed to.
There are a few exceptions to using this form. For example, landlords who receive free services or goods in exchange for free rent must complete Schedule E (Supplemental Income and Loss) on Form 1040.
For more information on barter income tax, consult with a tax professional, or read the IRS document Tax Responsibilities of Bartering Participants.