Let’s trade…your service for mine? Something you might not know…
Trading is such an amazing thing. Instead of exchanging money (which sometimes we don’t have right?) we trade services. This way we don’t have to claim the income and everyone wins, right?? WRONG. According to the IRS trading services IS a taxable event. What??!! That’s right.
Bartering is an exchange of property or services. You must include in your income, at the time received, the fair market value of property or services you receive in bartering. If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as fair market value unless the value can be shown to be otherwise.
For example, if I trade you my service of tax preparation for your giving me haircuts I would claim the fair market value of the services received as income and you would need to do the same. We can also deduct any expenses against that income like mileage etc but the trade is income and is fully taxable transaction.
What about trading a TV for a computer? Depending on the type of property the exchange may or may not be taxable (either fully or partially). It depends on the value of the items and if they are traded and used for business or have been depreciated for use in a business in the past.
The point is that just because you aren’t trading money doesn’t mean it is not taxable. Something most people don’t know.