Barter

[erchess]

The discussion on bartering that I found in TTB 1040 Edition pg 5-9 assumes that what is being bartered is business services between business people. In that context, everything I read makes perfect sense to me in light of the rest of the tax laws in the US. However, what about these facts? I know a young woman (rising Freshman in College) who is about to exchange several hours of her labor helping a boutique advertise itself for clothes that would otherwise be sold in the boutique. Assuming that this is not something she does more than a few times in a taxable year, she doesn't have to file Sch C for and pay SE Tax on the barter income does she? Could not a reasonable case be made for putting it on F 1040 Line 21? Likewise if I exchange my tax services for merchandise all is as in TTB but it would seem to me that if I paint a porch for someone and two rooms for two other people in exchange for their goods or services my barter belongs on line 21 where it neither increases my SE Tax if I have a profit nor increases my EIC if I happen to qualify for that. Anyone care to disagree?

[Burke]

MTG 2009 says "the value of bartered services must be included in gross income, usually on Sche C or C-EZ of Form 1040." So this argument boils down to the old one which has been discussed on this board previously as to whether the services meet the definition of earnings subject to SE tax or not. She is essentially being given goods in exchange for what would ordinarily be wages on a W-2 subject to SE. Or monies reported on 1099MISC as an independent contractor. (See rules). Both recipients definitely have to report the value as income on their respective returns. I would be wary of doing this as a normal practice, both because of the SE tax and the EIC implications, as you mention. If everyone did it, I am sure the IRS would jump on it like a duck on a June bug.

[erchess]

TY Burke

Very good post.