We have instagram influencers who keep the goods we send them as payment for their services. I understand that we need to report this payment on a 1099, but:
We use cost basis for our accounting, and were prepared to use the cost of the goods sent to these contractors both in our accounting system expense accounts as well as the 1099's sent out. However I see a lot of chatter about using "fair market value" in these kind of exchanges. Bottom line we want to use cost, not FMV as that's a whole subjective gray area mess for us as well as our contractors.
And I read these gems elsewhere:
"If the parties agree to the value of the services in advance, that will be considered the fair market value unless contrary evidence exists."
"The value of the goods or services can be an amount you and the person you are bartering with agree upon, unless it can be proven otherwise (such as through the open market)."
So my question is:
If we agree the cost of these goods is fair exchange of value for each of us, are we good using the costs on the 1099?
Hi mtwaynew,
Thank you for your question.
Here are some quotes from IRS.
Quote
Bartering is an exchange of property or services. You must include in your income, at the time received, the FMV of property or services you receive in bartering. If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as FMV unless the value can be shown to be otherwise.
Unquote
Page 20 of https://www.irs.gov/pub/irs-pdf/p525.pdf
Please also refer to Example 23 on Page 20.
Quote
Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.
Unquote
Page 2 of https://www.irs.gov/pub/irs-pdf/p561.pdf
Your goods can be sold on the open market for certain dollar amount (not your cost basis), and the receivers of your goods, if willing, can re-sell on the open market. Hence my opinion - the FMV.
Hope this helps.