Some small businesses still use the oldest form of commerce, bartering or the exchanges of goods and services. The IRS wants all taxpayers of small business, or any business for that matter, to make sure they know that “the fair market value of property or services received through bartering is taxable income”. According to Income Tax Law, bartering is taxable income and the classification of bartering for those not sure, is the trade of goods and services for another.
If a barter was made, regardless if it was made from something physical like a building or intangible like services through the internet, it is considered a barter. A taxpayer must report all bartering that has occurred. In order to do so, there is the 1099-B Form- Proceeds from Broker and Barter Exchange Transactions. This filing is to be done yearly by the clients or members that partook in the bartering, reported to the IRS.
Bartering income is the value estimated in dollars on the goods or services received or bought. It is the same as using money to receive or “sell” the goods or services. Because it is considered identical to real dollars, the barter amounts are to be reported on the 1099-B Form. There are a lot of people who are unaware that the IRS wants their share in any bartering because it is still a form of “cash” and all cash is taxable. For an example if a person trades a car for a camper, it is considered a barter so the IRS wants to know the value of both the car and camper so as to figure out the amount of taxes owed.
The rules for reporting bartering may vary depending on which form of bartering took place. Most bartering is reported on the 1040 Form Schedule C- Profit or Loss from Business with the 1099-B Form. There are other forms that are also used to file bartering: there are the forms 1065 for Partnerships, Form 1120 for Corporations, or 1120-S for Small Business Corporations. Check with the IRS website under Business for more information regarding filing for bartering or if you have any questions that need to be answered. Filing a return that involves bartering could be a tricky part of filing taxes, but it is to be done correctly so make sure to do your research thoroughly. Many taxpayers are unaware that bartering is the same as “cash” and can get penalized for not filing it correctly to the IRS, so make sure to keep all the proof that is needed to verify barter exchanges.