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Originally Posted by Ustwo
Sounds an awful lot like...currency 
There are businesses that do that with 'trade bucks', but from what I can tell its more of a way of shafting employees being paid in 'trade bucks'. |
It is like the old song "Sixteen Tons", "I owe my soul to the company store". In some areas especially Appalachia it was quite common to work for company supplied housing and chits which could only be used at the company store to buy food, etc...
I wonder just how far this bartering thing can go since the IRS considers it income for both parties. If it gets too big I'm sure they will start cracking down, of course there will always be those who under report income on their tax forms. It doesn't seem right for the government to tax bartered transactions between individuals but it appears that is the law. The tax man wants a cut of all transactions.
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Topic 420 - Bartering Income
Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of goods and services exchanged must be included in the income of both parties.
Income from bartering is taxable in the year in which you receive the goods or services. Generally, you report this income on Form 1040, Schedule C (PDF), Profit or Loss from Business. If you failed to report bartering income on returns you have already filed, you should correct this by filing an amended return, Form 1040X (PDF), for each year involved. For information on amended returns, refer to Topic 308.
A barter exchange is any person or organization with members or clients that contract with each other (or with the barter exchange) to jointly trade or barter property or services. The term does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis.
The Internet has provided a medium for new growth in the bartering exchange industry. This growth prompts the following reminder: Barter exchanges are required to file Form 1099-B for all transactions unless certain exceptions are met. Refer to Barter Exchanges for additional information on this subject.
If you are in a business or trade, you may deduct any costs you incurred to perform the work that was bartered. If you exchanged property or services through a barter exchange, you should receive a Form 1099-B (PDF), Proceeds from Broker and Barter Exchange Transactions. The Form 1099–B or other statement generally will show the value of any cash, property, services, credits, or scrip you received from the exchange during the year. The IRS will also receive the same information.
If you receive income from bartering, you may be required to make estimated tax payments. Refer to Topic 355 for additional information.
Additional examples of bartering, and information on how to report the income, are described in Publication 525, Taxable and Nontaxable Income.
http://www.irs.gov/taxtopics/tc420.html
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