Tax Tip of the Week: Barter Income is Taxable Income

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Ever give your friend a haircut in exchange for a free meal at her restaurant? Ever trade painting a wall for a month’s worth of dog walking? If so, you’ve generated reportable income – for both parties in the barter transaction.

The IRS says you must include the fair market value of the goods and/or services exchanged in reported income. To the IRS there is no difference if you bartered for the benefit or worked, got paid cash, and then spent it on the service. This means you’re subject to income tax and self-employment tax.

Whether you use a formal barter exchange or just trade between friend, you are supposed to declare that income. Formal bartering organizations should issue you a Form 1099-B, Proceeds from Broker and Barter Exchange Transactions to you. This information is also reported to the IRS.

For full details, check out the IRS Bartering Tax Center here.

Image Credit: Jaako, Flickr

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  • Ormita has a website with the history of barter on it which I found interesting – http://www.ormita.com/history-of-barter.html

    I saw a timeline that they also published on money and barter but I cannot find it any more. Either way we have considered using them because they seem to know a bit about bartering.

    The risks I see with barter exchanges are:
    inflation (exchange owners spending barter dollars they dont have)
    the wrong mix of members (everyone wanting my product/service but me having nothing to buy)
    poor credit control (creating more inflation)

    the only reason I liked the Ormita guys was that they let me join and trade but didnt let me sell until I had things to buy. I had ot fill out a buying schedule of everything I currently spent cash on and then they went away and 30 days later they came back with those things and THEN i started buying and selling. The risks seemed lower to me.

    I flirted with ITEX and other barter systems but i always ended up selling more than I could ever buy. Like I said – barter can be useful but watch out. I think Ormita don’t consider themselves a “barter” system as such – but more an excess capacity exchange or commodity exchange or something. I heard the sales pitch and the difference was a little outside my scope but maybe its just that the trades take place in a relatively short time (both buy and sell) so Im always close to $0 in my account because i spend everything I earn? Anyway if someone has a copy of their “timeline” of barter I’d be interested in getting one. I know I saw it somewhere on the web from Ormita but I cant seem to locate it again. It would be useful to take another look at.