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Road
Returning Member

How should I report bartering of business services for office rent?

I have a solo private practice (single-member LLC treated as sole proprietorship by IRS), and I  provide specific services for a company in return for office space for my practice. No money is exchanged (i.e., the company does not pay me for my services and I do not pay rent for my business), but I understand this to be barter and am supposed to report the fair market value (FMV) of my bartered services as income. I have done some research on the IRS' and others' websites but don't have a clear answer on how to report this. In particular, what I've found focuses on barter "income" but not "expense". For simplicity, let's pretend that the FMV for my service is $1,000/mo and the rent is $1,000/mo. and I do this for 12 months. Would I report $12,000 as business income on schedule C? Would I also report an expense of $12,000 in business rent, and would I furnish a 1099-MISC for the rent to the company? Here is my logic: if I didn't barter and instead received $12,000 in payments from the company and paid $12,000 in rent to the company, I would include them as income and expenses, respectively and I would also furnish a 1099-MISC to the company. If I bartered and only reported the income without the expense, I would owe more in taxes than if money did exchange hands. The other company would also owe more in taxes. Bartering is supposed to make things simpler, so it doesn't make sense that bartering would end up being more costly. Thanks in advance for any advice.

3 Replies
GeorgeDenseff
Level 8

How should I report bartering of business services for office rent?

You do not provide any form to the company that is supplying the rent.  That company  issues you a 1099-B form with the amount of the barter in Box 13.  

The only fill in their company information and box 13, no other fields.


To enter the 1099-B in TurboTax Self-Employed/Home & Business),  select Wages & Income, then Investment Income, then Stocks, Mutual Funds, Bonds, Other. Follow the prompts to enter the 1099-B information.

You take the same amount in Rent as a business expense for the business.

The other company is reporting that you furnished bartered services and they will owe taxes on that money.  Bartering does not make the income tax free for them.

Road
Returning Member

How should I report bartering of business services for office rent?

GeorgeDenseff, thanks for your prompt response. Correct me if I'm wrong, but from reading the 1099-B instructions, it is my understanding that 1099-B is for a broker or barter exchange (the latter is a 3rd party to coordinate bartering between 2 individuals/organizations). In my situation, we are not using a broker or a barter exchange, and the company is not a barter exchange.
 
I found a somewhat relevant example to my situation on an IRS website (it won't let me post the link, but look up "Publication 525 (2020), Taxable and Nontaxable Income" and look at the section on Bartering):
"Example 23. You own a small apartment building. In return for 6 months rent-free use of an apartment, an artist gives you a work of art she created. You must report as rental income on Schedule E (Form 1040) the FMV of the artwork, and the artist must report as income on Schedule C (Form 1040) the fair rental value of the apartment."

 

If I apply my situation to this example, then:

*the company should report $12k (as rental income) as the FMV of my services
*my practice should report $12k (as business income) as the FMV of the office rent.

 

This appears reversed (who reports service vs. rent as income) from what I originally posted, but the amount of reported income for each is the same. What the example doesn't include are the expenses to offset the income. If I'm receiving a value for rent, then I should be able to expense the value for my services. If the company is receiving a value for services, it should be able to expense the value for the rent. That's what it would look like if real money exchanged hands, but I can't find mention of this on the IRS' website.

Critter-3
Level 15

How should I report bartering of business services for office rent?

On the Sch C ... YOU have barter income  and then a rent expense deduction ... that is the proper way to report this exchange of services.  

 

And they should give you a 1099-b for the barter  income box 13  :   https://www.irs.gov/pub/irs-pdf/f1099b.pdf

 

And you should give them a 1099-misc for the rent paid box 1 :   https://www.irs.gov/pub/irs-pdf/f1099msc.pdf

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