Bartering involves the exchange of goods or services without using cash. A barter exchange is an organization that facilitates such trades between its members. However, informal arrangements that involve the exchange of similar services on a noncommercial basis, such as a neighborhood babysitting cooperative, are not considered barter exchanges. An example of bartering would be a plumber providing plumbing services in exchange for dental services from a dentist.

With the rise of the Internet, the bartering industry has expanded significantly. As a result, barter exchanges are required to file Form 1099-B, Proceeds From Broker and Barter Exchange Transactions for all transactions, unless an exception applies. For more details, refer to Publication 525, Taxable and Nontaxable Income, and the Instructions for Form 1099-B.

Individuals who barter outside of a barter exchange are not required to file Form 1099-B. However, they may need to file Form 1099-MISC, Miscellaneous Information, depending on the nature of the transaction. Consult the General Instructions for Certain Information Returns to determine if you need to file this form. If you participate in a barter exchange, you should receive a Form 1099-B, and the IRS will also receive a copy.

The fair market value of goods or services received through bartering must be included in gross income in the year they are received. Typically, this income is reported on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship). If you previously failed to report bartering income, you can correct this by filing Form 1040-X, Amended U.S. Individual Income Tax Return.

If you earn income from bartering, you may be required to make estimated tax payments.