Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of goods and services exchanged must be included in the income of both parties.

Income from bartering is taxable in the year in which you receive the goods or services. If you failed to report bartering income on returns you have already filed, you must correct this by filing an amended return, Form 1040X, for each year involved. For information on amended returns, see Topic 308.

If you are in a business or trade, you may deduct any costs you incurred to perform the work that was bartered. If you exchanged property or services through a barter exchange, you should receive a 1997 Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, or a similar statement, by February 2, 1998. The Form 1099-B or other statement generally will show the value of any cash, property, services, credits, or scrip you received from the exchange during the year. The IRS will also receive the same information.

If you receive income from bartering, you may be required to make estimated tax payments. See Topic 355 for additional information.

Additional examples of bartering, and information on how to report the income, are described in Publication 525, Taxable and Nontaxable Income, which can be ordered by calling 1-800-829-3676.

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