Issue link: http://cp.revolio.com/i/142672
According to the IRS, income from barter arrangements must be reported as income in the year in which the goods or services are exchanged. and are very difficult for the IRS to discover and enforce," Lirely says. He reassures the many people who fail to report their barter transactions that the IRS does not actively seek out those who practice barter. And if they did, they might not pursue legal action. "They wouldn't waste the money. They would weigh the cost of proceeding first. They don't aggressively seek litigation." According to the IRS, income from barter arrangements must be reported as income in the year in which the goods or services are exchanged. However, arrangements on a noncommercial basis are exempt and fewer than 100 commercial transactions in a given year do not need to be reported. Honesty is the Best Policy Oftentimes, the IRS will discover an unreported barter arrangement purely by accident. According to Lirely, a routine audit might uncover a problem when the amount of goods and/or services received does not balance with fiscal receipts. He explains that an IRS auditor consults the Market Segment Specialization Program (MSSP) audit guide, which is part of the IRS manual. For those in a service business, such as massage therapists, the accounting books should reflect a balance between clients and cash. "Appointments without corresponding revenue are not necessarily proof, but the auditor would ask about it," Lirely says. "It could trigger a closer audit of the person's business." MSSP guides exist currently for several industries, including construction workers, drywallers, farmers, furniture manufacturers, gas retailers, ministers, used car dealers, and a few other industries. To date, no guide exists for the massage industry. Other unreported barter might come to the government's attention when a spiteful partner involved in a breakup reveals the discrepancy. Lirely notes that the IRS has created a "reward program available to those who snitch." As far as medical services are concerned, practitioners usually extend a professional courtesy (i.e., they reciprocate equivalent services on a pro bono basis), Lirely says. He places massage in this category. Any income earned from barter might require the recipient to make estimated tax payments. Greg Hurd, director of career development and outreach at Bancroft School of Massage Therapy in Worcester, Massachusetts, emphasizes the importance of honestly reporting any barter arrangements, no matter the product or service. "We teach that the IRS states that a person should report 100 percent of the barter, because it is considered the same as income," Hurd says. Weigh your Options In spite of tax considerations, barter is flourishing and the Internet has made the practice easier. If you conduct a web search, there are many websites related to barter, including individuals looking to barter services and products, as well as professional organizations.