Bartering and Taxes
January 25, 2010 | By
Crafters are notorious for finding a way to make expenses more manageable. From reusing old items to hard negotiating for cheaper supplies, we're famous for our skinflint ways. Bartering is chief among the ways we find to reduce our expenses, but come tax time we're terrible about reporting that bartering. Yes, we need to. Yes, we're required to.
Any bartering we do for our small crafting businesses is taxable. Just because you don't pay money in a bartered exchange doesn't mean it won't get taxed. Most of us with small business file the Schedule C tax form, but bartered deals rarely get reported. The IRS requires that bartered income (that's the part you benefit from) gets reported just like any other income and it must be reported in the year the bartered transaction happened.
For example, say you craft your Magic Dinguses in January and they're exactly what your friendly neighborhood seamstress likes to decorate with. Your seamstress is the one who sews your business uniforms so you arrange a trade: Magic Dinguses for Uber Cute Uniforms delivered in February. The IRS insists that both of you benefited from the exchange and, by law, are required to report the value of what you received as income. You'd report the exchange during this tax year.
Now, before you get all excited about the ridiculousness, keep in mind that you also get allowed a deduction related to this exchange as well. Think about your expenses. What did it cost you to design and create your Magic Dingus? You may well be able to deduct some of the expense of that design and creation to offset the cost.
The econmy is tough, yes. And bartered exchanges may seem like an attraction way to keep costs low. But before you engage in such an exchange, make sure you know the value of your work, the expenses involved, and the tax consequences. This is one time when consulting a professional tax preparer can really help.
Photo courtesy of Álvaro Canivell
Gaylin Walli is a happily married, ne'er-do-well freelance writer obsessed with books. She lives in south-east Michigan.
All rights reserved. The material on this site may not be reproduced, distributed, transmitted, cached, or otherwise used, except with the prior
written permission of HandmadeNews.org.
