Question from a reader:”How do I report cash value for traded services at tax time? I know that I have a responsibility for taxes but I am not clear on how to value the transaction. Thanks, Kim.”
My answers are that you need to report what the actual value of what you would be normally charging an hour for what you did. It is similar to situations when you do work in lieu of rent for a room or transactions like that. Let us say that you are a painter. You paint a person’s house and the normal rate for painting the house was $2000. For your troubles, the client gives you a 2005 car worth $3000. You would show the income that you received as $3000 for your services.
You will be taxed on it as if it were cash that you received and you need to show it in your financial records accordingly. If the person gave you a car worth only $1500 you would show that you received $1500 as income for your painting.
You may or may not be able to show a loss because if the agreement was to take the car for the services you will have to and I repeat “have to” show the income as $2000 even though you might be losing $500 on the deal – at least on paper. Hopefully in situations like that you are thinking ahead and know what you are getting in terms of trading services or goods.
If you are bartering straight across, there again may or may not be a taxable situation. If no money is changing hands, you can be considered doing a favor for somebody – and friends do favors for one another, right?- but generally bartering can be taxed because of the inequities in the transactions. If you are giving $10,000 worth of gold for two apples for example, they better darn well be delicious apples and they better be sprouting into trees right before your eyes for that price. Or you must really like apples.
Don’t forget to factor in any other taxes that you might have to account for such as sales tax for items that you resell to your client if applicable.
Same rules of the road apply as well if you are self-employed. You are taxed on both sides of social security and half of self-employment.
Hope that answers your question and thanks for asking (and to answer your thanks, you are very welcome)!
April 29 2009
If you are looking for a day job, part time work, suggestions for saving money or investing, please check out my book, Practical Money Making, that is listed right after his paragraph in this very post. There are some great suggestions and ways to survive the Depression we are in.
Interested in any of my books? You may want to make a stop over here. Please click through to purchase my books and some other interesting items that actually ARE on sale.
Have you read my book, “Bad Tax Idea, Good Tax Idea“? Please order it today. The tips inside can save you hundreds if not thousands of dollars! Tax planning should be done year round and not just two weeks into January or later.
Part of all the proceeds from the sales of that book go to Rett Syndrome research. One girl is born with Rett Syndrome worldwide every fifteen minutes. My daughter Arianna has Rett Syndrome and we are working to do all we can to make her life easier and find a cure in her lifetime. Boys born with the Rett gene generally die at birth.
Kim Isaac Greenblatt
Cash Value of Traded Services