MILLBURY, MA and NEWPORT, RI…
For small businesses starting out, bartering services can be a way to get your foot in the door, generate some positive word-of-mouth advertising and get some needed services without cash out of your pocket. It can also be a way to get into hot water with the IRS if you do not declare what you received for your product or services as taxable income.
“According to the government, barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return,” said Paul Dion, owner of Millbury, MA-based Paul Dion CPA. “So, if a plumber does $1200 worth of work for a dentist in exchange for dental work, he/she must declare the $1200 as income on their tax return. The dentist must do the same for his/her return.”
Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.
How small business owners report bartering on a tax return varies. If you are in a trade or business, you normally report it on Form 1040, Schedule C, Profit or Loss from Business.
The need for reporting has also grown in recent years with the advent of barter exchanges and organized bartering. A barter exchange is an organized marketplace where members barter products or services. Some exchanges operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. The exchange must give a copy of the form to its members who barter and file a copy with the IRS.
“I’m sure more traditional bartering still goes on where one person provides a product or service in exchange for another and nobody needs to be the wiser,” said Dion. “In this age of heightened attention to small business filings and audits, it’s better to be safe than sorry and declare your barter properly.”
For a free consultation on how to claim barter income, please call Paul Dion CPA at (508) 853-3292. For more information, you can also visit www.pauldioncpa.com.
ABOUT PAUL DION, CPA
Beyond simple “bean counting”, Paul Dion, CPA and associates work side by side and speak in common English to help clients fully understand their tax situation and take proactive steps to pay the least amount of tax legally allowed while minimizing the risk of an audit. Clients save money and sleep well as night.
Business services include small business accounting, payroll, cash flow management, strategic business planning, new business formation, internet controls, QuickBooks, part-time CFO, bank financing, succession planning and non-profit organization direction.
For a free book, more information or a complimentary consultation, please visit www.PaulDionCPA.com or contact Paul Dion CPA, via Info@PaulDionCPA.com or (508) 853-3292. Offices are conveniently located at 22 West Street, #6, (Felter’s Mill), Millbury, MA 01527.
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