If You Barter to Save Money, the IRS Sees it as Taxable Income

Bartering and haggling has become a true art form in America as the country goes through a hellish economy and the populace still want to keep consumerism alive. Not that bartering hasn't been used many times before in America--at least under the table. Now people aren't bothering doing bartering and haggling under the table and do it openly in stores with the thought Big Brother IRS isn't watching. People who started bartering for the first time in their lives recently in order to save money and still play the role of consumer likely thought because no tangible money is involved, taxes wouldn't even have to apply. Well, the IRS is a combination of being sharp as a nail and overly trusting of taxpaying citizens. Their sharpness is being aware that bartering is becoming diffuse--and subsequently reminding us that you have to count that as taxable income.

If you want to paint the IRS naïve, then consider that their expectations of all taxpayers citing bartering as income is bordering on complete faith in every American citizen capitulating to their patriotic, taxpaying duty. Well, based on comments you'll see around the net on message boards discussing this tax ruling, a lot of faithful taxpaying citizens are throwing a pompous "LMAO!" in the face of the IRS.

Call this a kinder, gentler IRS if you want--especially if you go by the news that they're going to be more lenient to all taxpayers this year. A lot of citizens who've always paid their taxes won't be able to pay a cent this year and will need to take advantage of that IRS leniency where missing a time payment (or two in many cases) won't mean a penalty. Yet all that supposed leniency goes out the window when those same people have likely been bartering ever since America's economy dipped into an abyss. Call the IRS our new Big Brother instead who can still find a twisted pleasure in making sure we never get ahead financially.

Of course, paying taxes in America is more necessary than ever because of the deficits we're in. And chances are the middle class will be paying more than our current President promised in the next few years. It's not even out of the question that multi millions of people won't be able to even pay their taxes in manageable time payments this year because of depleted bank accounts due to high unemployment. Should that mean the IRS penalizing millions of people for not being able to pay their taxes, one would expect a call for an unprecedented leniency that I think ultimately will happen.

Should that prediction come true, would the IRS eventually extend their leniency to bartering? Because the IRS is always going to be stuck in that shadowy zone of wanting people to cough up bucks, yet managing to show they have some something resembling a soul, they'll probably deny a pass and instead work out plans for people to pay it in the most minute increments.

No, there's nothing more tortuous than paying through the nose.

So what happens if people decide to no longer be honest taxpaying citizens and not report any bartering as income? Obviously, it's not recommendable when IRS has increasing eyes and ears everywhere. In order to report your bartering, you'll need to fill out a specific form that you probably knew the IRS had printed in advance...
_____

Being the honest taxpayer you are, you'll have to either grab (or download) a 1040 Schedule C form in order to report your estimated income on barters you did during the year if you own a business. This form is to report any profit or loss from a sole business for the businessperson who bartered with customers. For the average taxpayer who doesn't own a business, your regular filing will have to include barters with the above business or individual as added income during the year. In those scenarios, you'll have to fill out a 1099-B (otherwise known as the Proceeds From Broker and Barter Exchange Transactions form) that provides plenty of space to list every bartering event that took place.

Based on how many barters that have likely already taken place in 2008, the IRS may have to provide some added space on the 1099-B in order for every taxpayer to list what they've done. Don't forget, also, that if you're a businessperson who thought about not reporting it and then changed your mind, the IRS provides an aptly titled 1040X form to get those barters listed that weren't on your initial 1040.

Whether people adhere to this via patriotic duty when you hear about increased participation in around 300 Tax Tea Parties being planned around the country before and during April 15--it'll be interesting to know...if we ever really do. Because the IRS probably wouldn't issue public reports listing how many people failed to report barters this year, we'll never get a true estimation of what making money under the table means.

Then again, despite the IRS finding things out on some taxpayers, there doesn't seem to be any way the IRS will be able to catch most cases of bartering when there's no evidence of it occurring through bank records. As earlier insinuated, there's already a sign of protest on the net against barter taxation as people start using bartering for the first time ever in their lives. When it seemed to be a perfect option in finding a way to get ahead, those people aren't about to let the IRS get in the way of at least part of the American Dream show a glimmer of its light.

Don't be surprised then to perhaps see signs of protest at those Tax Tea Parties regarding the taxation of bartering. "Taxation Without Representing the American Dream" might just be the perfect picket sign...

Source:

http://www.irs.gov/taxtopics/tc420.html