To barter is to earn & spend.

Hi June,

I've been reading your newsletters. We are having a debate on whether I, as a sole proprietor, have to declare a barter.

I understand I cannot make a donation claim, but do I have to declare a trade on my state and federal taxes? Does it make any difference if I trade time vs trading a $$ amount?

Thank you in advance,
Susan


Hi Susan,

A barter, whether in time or service, is income. Whether you're a sole proprietor, partnership, or corp doesn't matter. I am not sure what you mane by "donation claim" but let me give you a little more info on bartering.

Self-employed income is compensation you receive for a service you have performed [your time]or a product you have provided. Does the source of the income matter? No; it could be paid by your sister or the Government of Egypt. Does the form of payment matter? No; it could be cash, or check, or you could be paid in camels.

Here's an example: Syd System receives two massages from Rob Rolf in exchange for setting up the massage therapist's computer. The fee generally charged by Rob the masseur, let's say $200, is the amount Syd the IT consultant reports as income.

Likewise, Rob shows $200 in income and also $200 computer expense.

Each of these transactions results in income for a self-employed person. Don't be fooled into thinking that because the payment you receive is out of the normal course of your business or is not in good ol’ American currency that it is non-income. However unorthodox, it is still self-employed income.

Rob had income equal to an expense, however, his gross income may be subject to state tax and so he must include it on his tax return. before the deduction of expenses.

Now you know the rule. End of debate.

June