Tax Issues With Bartering Photography Services
Bartering is the trading of one product or service for another. Usually, there is no exchange of cash.
Barter may take place on an informal one-on-one basis between individuals and businesses, or it can take place on a third party basis through a modern barter exchange company.
In fact, bartering is so common that the definition I just gave you is straight from the IRS.
What does this mean? Uncle Sam wants a piece.
After reading this tax info below, be sure to check out the legal information on bartering here.
What do I report?
So while it may seem like a good idea to barter, especially if cash flow is lacking, keep in mind that whenever a barter occurs it is seen the same as cash in the IRS’ eyes.
There are no special tax benefits, or any others, for bartering. You must report the fair market value of the goods/services on your tax returns! All of this barter income is on a cash basis and counts as income for either accounting basis (accrual or cash).
According to the IRS, if you are in a trade or business, you may be able to deduct certain costs you incur to perform services that you barter. Barters that include personal use cannot be deducted.
How do I report this?
When you trade services or products your tax implications have just begun! You may be required to file Form 1099-MISC (PDF), Miscellaneous Income. Refer to the Form 1099-MISC Instructions (PDF) to determine if you have to file this form.
What if I didn’t report it?
Failing to report income can result in penalties and late fees, not to mention being drug through the awful process of being audited. If you’ve been bartering and failed to report this income, correct your return by filing a Form 1040X (PDF), Amended U.S. Individual Income Tax Return. Refer to Topic 308 for information on filing an amended return.
In fact, check out this article on PetaPixel about the “Pixel Trade”. An Australian photographer has been traveling for two years living solely on trades. In the United States, as this article’s tax information is based, this would have the photographer reporting lots of income, and being assessed penalties if not done.
Is bartering a red flag?
Perhaps it could be.
If you don’t report it and it is uncovered, sure thing – you can get in trouble! But as far as the engagement of barter transactions, this does not constitute any more of a red flag in the IRS’ eyes.
Whew! That was a lot of tax information to take in, but be sure to check out the legal information on bartering here.