2.15- Bartering Income

Bartering is the exchange of goods or services. A barter exchange is an organization whose members contract with each other (or with the barter exchange) to exchange property or services. The term doesn't include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis (for example, a babysitting cooperative run by neighborhood parents). Usually there's no exchange of cash. An example of bartering is a plumber exchanging plumbing services for the dental services of a dentist.

Information Returns for Bartering Transactions

The Internet has provided a medium for new growth in the bartering industry. This growth prompts the following reminder: Barter exchanges are required to file Form 1099-B, Proceeds From Broker and Barter Exchange Transactions for all transactions unless an exception applies. Refer to Bartering in Publication 525, Taxable and Nontaxable Income and the Instructions for Form 1099-BPDF for additional information on this subject. Persons who don't contract with a barter exchange or who don't barter through a barter exchange but who trade services, aren't required to file Form 1099-B. However, they may be required to file Form 1099-MISC, Miscellaneous Information. Refer to the General Instructions for Certain Information ReturnsPDF to determine if you have to file this form. If you exchange property or services through a barter exchange, you should receive a Form 1099-B. The IRS also will receive the same information.

Reporting Bartering Income

You must include in gross income in the year of receipt the fair market value of goods or services received from bartering. Generally, you report this income on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship). If you failed to report this income, correct your return by filing a Form 1040-X, Amended U.S. Individual Income Tax Return. Refer to Topic No. 308 and Should I File an Amended Return? for information on filing an amended return.

Estimated Tax Payments

If you receive income from bartering, you may be required to make estimated tax payments. Refer to Topic No. 306 and Form 1040-ES, Estimated Tax for Individuals for more information.

Additional Information

Refer to Publication 525, Taxable and Nontaxable Income and Publication 334, Tax Guide for Small Business for more information on bartering income and barter exchanges.