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)(PDF), for each year involved.
For information on amended returns, refer to Topic 308.
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 1099B (PDF) (PDF), Proceeds from Broker and Barter Exchange
Transactions, or a similar statement, by January 31, 2004. 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 Topic 355 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.
