Barter is just a natural form of commerce. Trading goods and/or services without using money remains part of the human condition. Money is a civilized convention. And of course, barter is sometimes used to circumvent the IRS by avoiding declaration of otherwise taxable income. If a tax preparer trades services with a bookkeeper, for example, the IRS loses out on taxable income from both parties.
The IRS is explicit about requiring any barter to be included on your tax preparation. And of course, putting a dollar figure on bartered goods or services can be difficult. Part of the reason the concept of money came into being. But fair market value at the time of exchange is probably the safe bet.
I don’t recall ever reading about an IRS tax fraud case involving barter. But the IRS could detect this through basic human greed. The tax preparer and bookkeeping example would be a hard scenario for them to discover. But one party may well not claim the income from the bartered transactions but still claim the associated expenses. This could then show up during a tax audit of that party.
My attitude is that our clients should exploit every loophole and legal tax advantage. We work hard doing just that, as any of our tax related posts will show. Illegal activity, like unreported barter, is generally foolish. I see clients dreading the mailman because of fear over the IRS finding some infraction. Sometimes for silly, small amounts, too. Even if you disagree on how the IRS calculates taxes, or how the government spends them, peace of mind is important.
We’re a CPA firm here in Wilmington NC. We offer tax preparation services, along with financial consulting, QuickBooks training, business consulting, etc. If you’d like a free initial consult with a CPA tax accountant, please give us a call at (910) 399-2705.
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Thank you for finding the time to describe the terminlogy to the starters!