Bartering is trading goods or services for another person's goods or services. For example I do the tax return for the auto repair shop and they repair my car. No money changes hands. This is income to both sides. I need to show income in the amount I would have charged for the tax return. The auto repair shop shows income an amount equal to what the repairs would normally cost. Since we both report the income, tax will be due on the sale but no money changes hands and now neither person is able to pay the tax due.
People also belong to Bartering clubs or groups. Like with the above transaction I do the tax return for the auto repair shop. Since I don't need my car repaired I get credits at the Bartering club. The Bartering club moves the credits from the auto repair shop's account to my account. I can pay my yard service person with credits in my account at the Bartering club.
The IRS treats all bartering transactions as though actual cash was transferred between the parties. All transactions need to be reported as income and the tax paid. If you have large amounts of credits at the bartering club that could create a tax problem. Money earned but no cash to pay the IRS is not what they want to hear. Give KatTax a call before you get involved.
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