Tag: bartering

  • Reporting your Bartering Income

    03 September 2013 / Uncategorized / Comments Off on Reporting your Bartering Income

    Welcome to another edition of Tuesday's Tidbits where we make tax & accounting simple. I'm your host Charles D. Shapero, CPA with Widget Bookkeeping & Tax and today we're going to talk about bartering income. Small businesses such as ours, often trade services back and forth. The tricky part about bartering is...that there's no cash that trades hands, it's usually services for services. So how do we value those services? Do I have income? What's the amount? When I provide say a tax return for someone, I know what the market value is. Let's just say it's $350, I know that when I provide that service, that I'm looking to get $350 of services back from the person that I'm bartering with. That according to the internal revenue code is taxable income. A lot of people don't report it because there is no cah that trades hands, and that is... incorrect. But a lot of times you can report that bartering income without ever having any tax effect. Here's the example, I prepare a tax return for a videographer, that does videos for me. I report that income but that video is a business video, it's a legitimate, ordinary and necessary business expense it's deductible, so I have income for $350 I have an expense for $350, I have no income tax effect. The area where you run into an income tax effect is if I provide tax services for say massage therapy, $350 of income...oh massage therapy is not deductible. It's a personal expense, therefore I do report income. And that's the way the internal revenue code reads. A lot of people use an exchange, like ITEX or Florida Barter. And the way that works is I'll provide say tax or accounting services for somebody in the group, and I'll earn credits, those credits can be exchanged later for other services Typically, ITEX will issue you a 1099-B at the end of the year. so you can report all that barter income, it doesn't matter that you didn't use those credits, When you earn those credits, that's when income is recorded on barter income In QuickBooks, bartering can be set up like an ITEX account can be set up like a bank account. That way you can treat all earnings as deposits, you can use all expenses as checks in Quickbooks, and you can reconcile that account on a monthly basis. This concludes today's Tuesday's Tidbits, see you next Tuesday! Widget Bookkeeping & Tax Know More, Keep More

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