Do I Have to Report Bartering Income on My Taxes?
Yes: Receiving something other than money for services is still taxable income to the IRSBy Judy Malmon, J.D. | Reviewed by Canaan Suitt, J.D. | Last updated on January 17, 2024 Featuring practical insights from contributing attorneys Kevan P. McLaughlin, Robert J. Fedor, Jr. and Clayton E. Wire
Use these links to jump to different sections:
- Federal Tax Liabilities for Bartering Transactions
- IRS Form 1099-B: Tax Reporting for Bartering
- Exchanging Donated Services for Stock in a Startup
- Find an Experienced Tax Law Attorney
In the ordinary course of things, people who work are paid money in exchange for hours put in on a job. Most of us receive regular paychecks as a source of income and don’t give a lot of thought to Social Security, income tax withholding, unemployment insurance, and other benefit payments taken out.
But there is more than one way to be compensated for work performed, whether as a trade (“I’ll do your bookkeeping if you mow my lawn”) or as a deferred form of return within the sharing economy (work for a startup in exchange for stock with no present value). Just because you don’t receive a check doesn’t mean the exchange is not viewed as income under the law and, therefore, subject to tax laws.
A lot of these types of transactions fall below the radar. Business owners and the self-employed may not even be thinking about services exchanged on a friendly level as reportable gross receipts. But be aware that the IRS is not so casual in its tax policy.
Federal Tax Liabilities for Bartering Transactions
“It’s one of the first questions that comes out of an IRS agent’s mouth when you’re going through an audit,” says Cleveland tax attorney Robert Fedor. Fedor notes that barter, especially gig economy workers, is fairly prevalent, “and very little is picked up as 1099 income. It’s become a big tax gap issue for the U.S. economy.”
“A wage is a wage, no matter how it’s paid,” adds Denver employment attorney Clayton Wire. He references other forms of in-kind payments, such as health insurance, as part of an employee’s total compensation. Tax implications will arise from a barter arrangement to both the worker and the recipient of services. But how do you know how much to declare when you were paid in-kind?
San Diego tax attorney Kevan McLaughlin states, “When it comes to bartering, the general rule is you have to pay taxes on the fair market value of the goods or services that you’ve exchanged.”
IRS Form 1099-B: Tax Reporting for Bartering
There’s a specific tax form for declaring barter taxable income, particularly if you use an online broker service linking people who wish to barter for goods or services, like ridesharing (think Uber, for traded services). If you use one of these exchanges, you must file an IRS Form 1099-B declaring the value of all barter-based income.
Exchanging Donated Services for Stock in a Startup
A variation on the barter theme, as noted above, is when new companies and small business owners still in startup mode leverage donated services in exchange for stock.
“This is a little bit different,” McLaughlin explains. “The concept is still an exchange, but when it’s labor for stock, as for example with a small startup, the prevailing tax law says it’s income to you at the value when it vests. If it’s restricted stock, as with a new company, it doesn’t have a vesting schedule, and you can’t sell it. So, it’s like, ‘Work for me 40 hours a week, I’ll give you 1,000 shares, but you don’t get them until, say, two years from now.’ It’s not a taxable event until it vests.”
Find an Experienced Tax Law Attorney
If you’re considering a barter exchange, be sure to have a written contract governing your arrangement. When should filers consult a tax professional? “Early and often,” says McLaughlin. “If you got paid with restricted stock, or your business received services it didn’t pay for, and you didn’t talk to someone first, now there’s trouble.”
For questions on specific business tax issues, reporting requirements, or general tax compliance, visit the Super Lawyers directory to find an experienced tax lawyer in your jurisdiction. If you want more information on this area of law, see our tax law overview.
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