Yup. There’s a form for that, too.
Chef Louie was in a pickle. It was tax season. And those taxes weren’t going to prepare themselves. Cash was tight. Despondently, Chef Louie walked down the street with his hands in his empty pockets. Then, Hark! What was that? He heard of a guy, Tax Man Stan, who was into barter. No money changes hands?! Could there be a way out? Chef Louie’s spirits were rising like a double decker devil’s food cake.
They met. Tax Man Stan’s ex-wife Nan had been needling him to provide something for their daughter Fran’s baby shower. Tax Man Stan agreed to do Chef Louie’s $650 taxes, and Chef Louie agreed to cater $650 worth of pink and blue themed delicacies. They smiled, shook hands, and got to work.
But wait! Contrary to public opinion, this is taxable income for both businesses, and there is still paperwork. This is because Chef Louie and Tax Man Stan have both generated revenue. It may not be cash, but it is as if they simultaneously paid each other, and purchased from each other. Whether the “payment” was in cupcakes or cash, there was payment. In this case, since they agreed that the tax prep and the cupcakes were both worth $650, the amount is easy.
The paperwork is Form 1099-Misc, just as if they had used regular ordinary dollar bills. (Had they gone through a barter exchange, they’d use Form 1099-B, Proceeds from Broker and Barter Exchange Transactions.)
Some would argue that they both also had an expense, so it’s going to wash out, and therefore won’t matter. Wrong! In our example, they are both in business. But while Chef Louie is buying a business service (tax prep) and then professionally providing cupcakes, Tax Man Stan is buying a personal item (for his daughter) but professionally providing the service of tax prep. Let’s substitute Handyman Dan for Tax Man Stan, and make Handyman Dan paint Chef Louie’s kitchen. Now, both provide a service to another business, and both buy a service from another business. This is a wash, right? No. Even if the cost of the paint equals the cost of the food, which means they each end up with the same profit, it still has to be reported. They both still have to include $650 of revenue, and they both get to include $650 of expense. And since the amount is $600 or more, they both have to issue 1099s at year end.
But what if they don’t? Well, then they both commit tax fraud for underreporting their income. (Major bummer, Dude.)
In our office, by the way, no barter. Just regular old ordinary USD. Boring, but effective.