How to Report Barter Income

Many people are not aware that the benefits derived from barter transactions are taxable and must be reported to the Internal Revenue Service on IRS Form 1099-B and your state tax return. The IRS and your state maintain Websites where you can download income tax forms to report barter income. Generally, whatever property or services that you barter for amount to taxable income based on the fair market value (FMV) of the property or services received by the taxpayer. Barter network membership and transaction fees may be deducted as permissible expenses. If you are a member of a barter network, it is the responsibility of the network to provide you with a completed IRS Form 1099-B.

Difficulty: Moderately Challenging

Instructions

Things You'll Need:

• IRS & state income tax forms (specifically IRS Form 1099-B)
• Accountant or CPA (recommended for complex transactions)
• Income derived from bartering transactions

How to Report Barter Income

1. Join a barter network and pay the initial membership fee, if any.

2. Barter for services or property through a barter network. If you are not bartering through a barter network, the first step is the actual barter transaction agreed upon by the parties.

3. Appraise the fair market value of the property or services received for tax purposes. FMV is the value that a willing buyer under no duress would pay for the property or service(s) involved in the barter transaction.

4. Receive your Form 1099-B from a barter network or complete one on your own at the end of the year.

5. Submit your tax returns. Attach a copy of Form 1099-B to your other tax forms. Keep a copy of all forms that were mailed, including IRS Form 1099-B.

Tips & Warnings

• If your barter transactions are for business transactions, you can deduct the FMV of the property or services received in the barter transactions, as long as the property or service is for an actual business purpose.
• Knowingly failing to report income derived from barter transactions may lead to criminal charges for tax evasion. In addition to criminal and civil penalties, you would be required to pay the IRS (and your state) interest and other monetary penalties.

Resources

• This is the official website of the Internal Revenue Service (IRS). You can download IRS forms and instructions at the site, including forms for reporting barter income.