Does bartering create taxable income? Bartering is taxable? These are common questions and expressions regarding bartering that may be asked of a tax attorney. Bartering is basically when services are traded. For example, maybe you own a landscaping business and your neighbor is a mechanic and owns and auto mechanic shop. You may be having an issue with your brakes and your neighbor agrees to fix and replace your breaks if you complete a landscaping job this summer in his backyard. This is bartering. The article below has been drafted by a Denver tax attorney at The McGuire Law Firm to outline a few important facts and issues about bartering. Please feel free to contact our law firm to discuss any of your legal matters.
As stated above, bartering is the trading of one product or service for another. It is not uncommon for small businesses to barter because it may help with cash flow and avoiding certain expenses. If you do barter, the value of the products or services is considered taxable income by the Internal Revenue Service.
There are barter exchanges, which are organized markets whereby members or individuals barter their trades, services and/or products. Barter exchanges are required to issue Form 1099B, which states the proceeds from barter and broker exchange transactions and is reported to the Internal Revenue Service.
Barter and exchange dollars are considered “real” dollars in terms of the individuals or businesses income tax returns. The value you received should be reported as income on your income tax return. For example, if the cost of fixing your breaks would have been $600 from the example above, you would report this $600 as income on your income tax return.
The bartering income is taxable in the year the bartering occurs. The barterer may owe income taxes, self employment taxes, employment taxes and even excise tax depending upon the bartering that occurred. How you report bartering will depend upon your situation. If you have an ongoing business, then the value you received through bartering would be added to the other income or gross receipts of the business.
A tax attorney or business attorney at The McGuire Law Firm can assist you with your tax questions and matters as well as business legal matters. It is important for all small businesses to understand the tax consequences of the transactions they enter into. A Denver tax attorney or business attorney at The McGuire Law Firm can assist you with these matters and help your business succeed.
Schedule a free consultation with a tax attorney by contacting The McGuire Law Firm. We offer a free consultation to all potential clients and have law offices in Denver and Golden Colorado.