Article: 50513
Overview
Bartering is exchanging goods or services without using money—is considered a form of income by the IRS. If you participate in bartering, you must report the fair market value of what you receive as taxable income on your return.
What counts as Bartering?
Bartering includes any exchange of goods or services where no cash changes hands. Examples include:
- A graphic designer creates a logo for a restaurant in exchange for free meals.
- A mechanic repairs a friend’s car in return for landscaping services.
- Two businesses trade products or professional services instead of paying each other.
Even if no money is exchanged, the IRS requires you to treat the value received as income.
How is the Value Determined?
- The value of bartered goods and services is based on fair market value (FMV).
- FMV is the price an unrelated buyer and seller would agree to in an open market.
- Both parties in the exchange must report on the FMV of what they received as income.
Deductible Expenses
While the value of bartered goods or services is taxable, you may still deduct ordinary and necessary business expenses if the bartering is part of your trade or business.
Note: However, you cannot deduct personal expenses related to fulfilling a bartering agreement. For example:
- If you barter personal babysitting services in exchange for home repairs, the value received is taxable, but the babysitting time itself is not deductible.
Example
- You are a web developer who builds a website for a photographer in exchange for a $1,500 photo package.
- You must report $1,500 as taxable income, the fair market value of the services you received.
- If you incurred business expenses (like software costs for building the site), those may still be deductible under normal business rules.
Additional Resources
For more information, see the IRS guidance on bartering: https://www.irs.gov/businesses/small-businesses-self-employed/bartering-tax-center