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Barter Exchange Tax Rules

Bartering is the exchange of goods or services for other goods or services. Individuals or businesses have the ability to barter.

Bartering may also take place through a barter exchange.

A barter exchange is a third-party company used to facilitate bartering. An individual or business must report income from the bartering, no matter how the exchange took place, in the year the taxpayer received the goods or services.

Individuals Bartering

If the goods or services received were for a personal use, the taxpayer must report the income on either Schedule C or Schedule C-EZ. The reportable amount is equal to the fair value of the goods or services received.

Businesses Bartering

When a business barters £390 or more worth of goods or services during a tax year, the business must send Form 1099-MISC to the person receiving the goods or services.

The amount reportable on Form 1099-MISC is equal to the fair value of the goods or services received. If the taxpayer uses any of the services for a personal use, instead of a business use, the person receiving the personal goods or services does not need to send Form 1099-MISC, but the business receiving business use goods or services still needs to send Form 1099-MISC. For example, an accountant barters with a painter to paint the accountant's house in exchange for the accountant filing the painter's business taxes. Here, the accountant would not send the painter Form 1099-MISC, but the painter would send the accountant Form 1099-MISC because the accountant's use was personal, while the painter's use was for his business.

The taxpayer then reports the barter income, regardless if they received Form 1099-MISC, on the appropriate tax return for the business: Form 1040 Schedule C for individuals, Form 1065 for partnerships, Form 1120 for corporations, or Form 1120-S for small corporations.

Bartering Through a Barter Exchange

While using a barter exchange, if any exchanges occurred during the year the taxpayer will receive a Form 1099-B from the barter exchange. The amount of barter income is located in box 3. This amount is reportable as income on an individual or business tax return.