It must be that time again, because the tax questions from readers are rolling in. If you have a question, send it to firstname.lastname@example.org.
The first is from Andrew who writes:
I’m a computer tech, and I’ve had a lot of people approach me about bartering for various services. I’ve also handled my own taxes since I was fifteen, so I consider myself to have a good general understanding of our tax system, at least as much as it pertains to individual taxes, itemized deductions, and even partnership earnings.
One area I’m yet unclear on, however, is the tax status of bartered goods and/or services. Of those who have wanted to barter with me, most have indicated they prefer barter because such transactions are not taxed. I have a vague memory of reading that barter is still considered a form of income.
Q: If one barters goods or services, must one claim the value of the transaction as income, or do specific rules apply?
Good question, Andrew. I took it to one of my go-to tax geeks, CPA Todd Koch of Knutson and Co. Looks like you answered your own question:
A: Barter income is still income. In fact there is even a 1099 reporting form for barter exchange income (1099-B) if you use a barter exchange. Often, the barter exchange income does not change overall taxable income as you are exchanging for a deductible business expense. So if you show the income you would also get to deduct the expense.
Check out Tax Topic 420, the IRS tip sheet on bartering income, for more details.
Now many of you have probably given money to a charity for helping Haiti. You may or may not have heard that you may include those donations on your 2009 taxes. The IRS has more on how this works at IRS.gov.
But I asked certified financial planner Ryan McKeown how when you donate to a place like the Red Cross or the American Refugee Committee, places that do work in multiple countries,
Q: How will the IRS know if the money you gave went to Haiti?
A: Most multi-faceted organizations will provide a receipt showing that your donation went specifically toward Haiti relief, similar to a special collection taken at a church. If this is not provided, I recommend asking for one as all organizations are required to provide receipts for donations.
I also recommend writing ‘Haiti Relief’ on the check memo line for donations going toward that cause.
For donations by text message, a telephone bill will meet the recordkeeping requirement if it shows the name of the organization receiving the donation, and the contribution date and amount.