Resources:
- IRS Publication 525: Taxable and Nontaxable Income
- 2012 Form 1099-B
- 2012 Instructions for Form 1099-B
- IRS Bartering Tax Center
Why YOU Should Care:
You must report the fair market value of goods or services received in a barter as income. You are required to pay adequate income tax withholding on these amounts.
Determining Amount to Report
Taxpayers should report income in the amount of the fair market value of the good or service received. If you agree on the value of the exchanged goods or services before the barter takes place, this amount will be accepted as the market value unless either party can prove the true value should be calculated otherwise.
The fair market value is the amount you would pay for the good or service if you were using cash rather than an exchange. If the item is available on the free market, it’s cost on the day of your exchange is the value you need to report.
Formal Barter Exchanges
If you join a formalized exchange program or club where you and other members can exchange goods and services in a cash-less environment, you will be required to provide your Social Security number or Tax ID number so the exchange can make proper reportings to the IRS.
The exchange program may or may not collect appropriate income tax withholding. Be sure to review the program’s rules and procedures and check your records quarterly. Annually, your barter exchange will send you a Form 1099-B specifying the total income you earned over the year and the taxes withheld, if any.
