I perform a service (product review) for which I receive a sample of the product in exchange for the service. I receive a 1099-NEC where the amount paid is the total FMV of the products sent to me. According to what I have researched, these items, which are received as a "barter" in exchange for a service and can be depreciated, which makes sense because as soon as they are opened, used, tested etc for the review, their FMV drops considerably, so within the same year as they are put into service for the purpose of review. I end up with many items that are not worth anywhere close to original FMV, and some are even worthless.
I cannot determine where I would record this depreciation though.
Obviously the easiest is a section 179 deduction, but the rules for that state it must be purchased. That is where I get stuck. IRS Topic 703 says "In most situations, the basis of an asset is its cost to you. The cost is the amount you pay for it in cash, debt obligations, and other property or services." Note, "services." So it sounds like paying in services is a cost.
However, IRS publication 946 says in order to qualify for a 179 deduction the item must be purchased. It then goes on to say an item is not purchased if the following applies:
"Property is not considered acquired by purchase in the following situations:
- It is acquired by one component member of a control-led group from another component member of the same group.
- Its basis is determine in whole or in part by its adjusted basis in the hands of the person from whom it was acquired"
These sentences make no sense to me. So am I purchasing these items with the review service I perform or not? If not, where/how do I add the depreciation.
My previous year taxes are done (thank you Turbo Tax) but I am preparing for next year and this is a new business. I need to get my bookkeeping straight. Thank you!
