Bartering – It’s Still Income to the IRS

Assume Farmer John, an acquaintance, comes to my office with a small tax problem and I spend 10 minutes researching and looking for the answer.  I then provide him with a bit of advice, and he asks me what he owes me.  I ask him to give me a dozen eggs from his family farm and we’ll call it even.  Do I have to report this transaction as income on my taxes?

This is an exchange of one product or service for another, with no cash changing hands.  It’s a barter.  A barter may be an exchange of goods for goods, services for services, or as in my example, services for goods.  According to the IRS, the fair market value of the goods and services exchanged in a barter transaction must be reported as income by both parties.  So the $2.00 dozen of eggs must be reported as income on my taxes.  And the value of my services must be reported as income by Farmer John.

Besides the income tax responsibilities, there may be other tax implications associated with bartering such as:

  • self-employment tax
  • employment tax
  • excise tax
  • capital gains or capital losses
  • non-deductible personal loss

Bartering transactions take place in a variety of settings, including home-based online bartering businesses, bartering exchanges, or on an informal one-on-one basis. For more information about the IRS rules on bartering, see IRS Tax Tip 2012-33 and the Bartering Tax Center on the IRS website.