Taxpayer asks:
I’m a graphic designer and I do printing on the side. Last year, when business was slow, I was in a jam and needed some work done on my roof that I couldn’t afford. I have a friend who just started a roofing company so I agreed to swap out the labor for the repairs (about $3000) for printing. He fixed my roof and I printed up new business cards, envelopes, invoices and door knockers.
This year, my friend told me that he needs my Social because his accountant told him that he has to 1099 me. I say no way because I didn’t get paid. It was a fair swap. He says his accountant says he has to give it to me. Who’s right?
Taxgirl says:
I’m afraid that the accountant is likely right. A form 1099-MISC is issued when you have paid at least $600 to perform services in the course of your trade or business. In this case, your friend paid for printing and design services as part of his business – he just didn’t pay in a traditional way. The exchange of services is still reportable (and taxable). You received a value of $3000 (the labor to fix your roof) in exchange for what I’m assuming was $3000 worth of product.
There are exceptions that may apply: for example, payments made to corporations are rarely reportable on a form 1099-MISC. I’m guessing you’re not a corporation since you referenced your Social Security number and not an EIN – but if that’s not the case, then you should chat with the accountant.
Regardless of whether you’re a corporation or sole proprietor, barters and swaps are still reportable and taxable in most instances. Think of them just like cash: if it would be taxable if paid in cash, it’s taxable if paid in goods or services. If it’s part of your trade or business, report the value received on a corporate return or your schedule C; if it would be taxable but not as part of a business, report it as “other income” on line 21 of your form 1040. Of course, make sure that you keep excellent records to support your reports of income and expenses.
One more note: if you do this often, consider using a barter exchange (increasingly popular these days). The formalities might help out with record-keeping. Those transactions would be reported on a form 1099-B, not a form 1099-MISC.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
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