Four Facts About
economy, small business owners sometimes look to the oldest form
of commerce – the exchange of goods and services, or bartering.
The IRS wants to remind small business owners that the fair
market value of property or services received through barter is
is the trading of one product or service for another. Usually
there is no exchange of cash. However, the fair market value of
the goods and services exchanged must be reported as income by
four facts about bartering that the IRS wants small business
owners to be aware of:
1. Barter Exchange
A barter exchange functions primarily as the organizer of a
marketplace where members buy and sell products and services
among themselves. Whether this activity operates out of a
physical office or is internet based, a barter exchange is
generally required to issue Form 1099-B, Proceeds from Broker
and Barter Exchange Transactions, annually to their clients or
members and to the IRS.
2. Barter Income
Barter dollars or trade dollars are identical to real dollars
for tax reporting. If you conduct any direct barter - barter for
another’s products or services - you will have to report the
fair market value of the products or services you received on
your tax return.
Income from bartering is taxable in the year it is performed.
Bartering may result in liabilities for income tax,
self-employment tax, employment tax, or excise tax. Your barter
activities may result in ordinary business income, capital gains
or capital losses, or you may have a nondeductible personal
The rules for reporting barter transactions may vary depending
on which form of bartering takes place. Generally, you report
this type of business income on Form 1040, Schedule C Profit or
Loss from Business, or other business returns such as Form 1065
for Partnerships, Form 1120 for Corporations, or Form 1120-S for
Small Business Corporations.
For more information, see the
Bartering Tax Center in the Business section at