Today the IRS reminds us that the value of goods or services received through bartering is taxable (IRS Tax Tip 2013-29).
Bartering is simply trading one product or service for another product or service without an exchange of currency. I was introduced to bartering in about 3rd grade where the hottest products being traded were Garbage Pail Kids cards and (this is going to make me seem really old) . . . marbles. You know, little colorful glass spheres that you shoot with your thumb. Ok, nevermind. The point is, most people move on from bartering when they grow up and get a job that pays in currency for the work they perform. But not everyone.
Some people barter informally with people they know, such as the plumber who fixes a leaky pipe for his dentist friend in exchange for dental work (this is the IRS Tax Tip example). Others barter through organized “exchanges” like the one I found on the internet with a highly redundant name: “Barter Trade Exchange.” Their home page explains how it works:
In times past people traded live stock, vegetables, grain etc. for things they needed. It worked fine if you located who needed what you had and had what you needed. It was hard to find them, that’s why money was invented; Stones, Beads, Shells, Pearls, Coins, Silver, Gold and finally paper money.
In an Exchange, you deal with fellow members buying/selling goods and services using trade dollars, not cash. Offer what you have to earn trade dollars to spend. It is an easier way (not free) to acquire what you need without money.
I’m not sure how common bartering is; it is definitely not on my short list of typical tax problems. And I’m not sure the IRS knows either because my hunch is it doesn’t get reported like it should. That’s why the IRS came out today (a few weeks before the filing deadline) with a few important points they would like taxpayers to know about bartering. Here they are:
- Barter exchanges must issue form 1099-B to their members
- Trade dollars (and the value of goods/services) received in barter must be reported as income
- Besides income taxes, there may also be self-employment, employment, or excise tax implications for those who barter
- Be sure you understand the specific reporting requirements that apply (for additional information, see the IRS’ Bartering Tax Center)