This article has been updated for 2023 (2022 tax returns). For all the benefits of bartering – free goods & services, community-building, the thrill of the trade – there is one downside that you might not have anticipated. Taxes. That’s right, goods and services received in a barter transaction have to be reported as income with the IRS. Just when you thought you were saving money and avoiding taxes!
Bartering Exchange Tax Reporting
Bartering is mostly done one a one-on-one basis, however, when you exchange goods or services through a third party, you are using a “bartering exchange”. Bartering exchanges are mostly membership and transaction fee based bartering service companies. They are required to report all activity for clients through form 1099B – Proceeds from Broker and Barter Exchange Transactions. A copy of the 1099B will be sent to you and to the IRS.
What if you don’t use a Barter Exchange?
If you don’t use a bartering exchange, you are still expected to report bartering income – and you do this through IRS Form 1040C (Profit or Loss from Business – also known as “Schedule C”).
When do you Report Barter Income?
In the year you received the exchanged good or service (did the bartering).
What Exactly do you Report?
You are required to report the fair market value (FMV) of the goods and services exchanged (both parties must do this). This may be a very tough thing to do if you trade some obscure good or service, unfortunately.
How Much are you Taxed for Bartering?
Bartering is subject to all of the normal income taxes. You’re taxed on gains, you’re subject to losses, etc. And the rate you’re taxed is dependent on what IRS tax bracket you fall into.
For more information you might want to consult a tax professional, and you can also check out the following resource:
Have you paid bartering taxes before?
Master Blaster runs Barter Town.
I just wanted to clarify: “The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.” So, for example, if you are trading baby sitting, this would not count unless you run a daycare. Only stuff you normally would do on a *commercial* basis counts as barter income. It’s not that common and would just be added to your other 1040 -C income.