Do you feel like you are in a Snowpocalypse this year? If this winter keeps going as it has been and Massachusetts grinds to a halt, we might be reminded of a simpler time. Those olde tyme days when we might considering bartering by trading a bushel of wheat for a couple of chickens.
Nowadays, it might instead be agreeing to shovel or snowblow your neighbor’s driveway in exchange for designing a website. Just when you thought Snowpocalypse 2015 could not get any scarier, consider this: that type of exchange is barter income. Bartering is both reportable and taxable.
What is Bartering?
Bartering is an exchange of property or services. You must include the fair market value of the goods or services exchanged as income. Barter income can be taxed in a number of different ways. If you exchange a capital asset, the barter income could be taxed as a capital gain – think classic car for example. If the exchange of services involves your business or profession, it can fall into the self-employment category and thus be subject to Federal Income Tax, payroll taxes, and state taxes. If the exchange falls outside the scope of your typical business or profession, it might be reportable as ‘other income’ on line 21 of the 1040 Form. To learn more you can read IRS Topic 420 – Bartering Income.
Next time you are thinking about clearing out some snow for your 95 year old WW2 veteran neighbor, ask yourself this: Is the IRS watching?
Questions About Bartering and Snowpocalypse?
Did you have a bartering agreement with anyone last year? If you have questions, thoughts or concerns regarding how to file bartering income, WorthTax can review your taxes for you and advise you what is best for your tax filing status. We guarantee our pricing so you will never pay more than was discussed. Please feel free to contact us, leave your comments below or post to on our Facebook, Google+ or LinkedIn pages.