Kevin Simpson wrote up an article for the Denver Post, “Barter system booms in Colo.” Simpson talked to a few people who have been trading goods and services directly, but I’m surprised that he didn’t mention the tax ramifications.
I Googled “‘tax income’ barter,” and the top hit is the following information from the Internal Revenue Service:
Topic 420 – Bartering Income
Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of goods and services received in exchange for goods or services you provide must be included in income in the year received.
Generally, you report this income on Form 1040, Schedule C (PDF), Profit or Loss from Business. If you failed to report this income, correct your return by filing a Form 1040X. Refer to Topic 308 for Amended Return information.
A barter exchange or barter club is any person or organization with members or clients that contract with each other (or with the barter exchange) to jointly trade or barter property or services. The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.
The Internet has provided a medium for new growth in the bartering exchange industry. This growth prompts the following reminder: Barter exchanges are required to file Form 1099-B for all transactions unless certain exceptions are met. Refer to Barter Exchanges for additional information on this subject. If you are in a business or trade, you may be able to deduct certain costs you incurred to perform the work that was bartered. If you exchanged property or services through a barter exchange, you should receive a Form 1099-B (PDF), Proceeds From Broker and Barter Exchange Transactions. The IRS also will receive the same information.
Please refer to our Bartering page [see the original document for related links] for more information on bartering income and bartering exchanges.
And how many people bartering in Colorado are filling out the legally required forms and paying the legally required taxes? My guess is the percent is less than two.
In today’s world, you can hardly do anything without being required to fill out a bunch of government forms and pay some bureaucrat or other protection money. There’s nothing so simple, straightforward, or beneficial that bureaucrats can’t turn it into a legal nightmare. The IRS’s documentation reads like it comes out of the world of Brazil.
The IRS imagines that barterers are going to refer to Topic 308 so that they can fill out Form 1040X. Good luck with that.
“I hereby inform you under powers entrusted to me under Section 476 that Mr. Buttle, Archibald, residing at 412 North Tower, Shangri La Towers, has been invited to assist the Ministry of Information with certain inquiries and that he is liable to certain financial obligations as specified in Council Order RB-stroke-C-Z-stroke-nine-O-seven-stroke-X.”