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I'd like to confirm something before I step further into a family squabble.
Elderly relative "A" owes relative "B" about $7,000 for roof-repair, window replacement and deck labor done on "A's" summer home in preparation to sell it. Relative "B" is a sole-proprietor handyman and as far as I know, faithfully files and pays his taxes.
Relative "A's" son is suggesting that instead of paying "B" with a check, that his parents hang on to their cash and "pay" "B" by giving him a couple of pieces of artwork that are worth somewhat more than the $7,000. "B" seems amenable but is wondering what the tax implications are and "A's" son is saying he doesn't have to report it.
I have indicated I disagree. It seems to me there is a taxable barter transaction.
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It looks like a taxable barter transaction to me, as well. "B" needs to have the artwork appraised at the time of transfer to determine how much is ordinary income (the value of the artwork) and how much is capital gain (the appreciation of the artwork after transfer).
I'm agreeing with Arthur--take a look at the instructions to the F. 1099-B; since this is not a commercial transaction, the fair market value of the art should be included on a 1099-Misc filed to show the payment to the handy relative. But it's taxable and reportable, as it does not meet an exception to IRC 61.
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If it were commercial (and it doesn't seem to be) on "A"s part, would payment-in-kind require California independent contractor payment reporting on DE 542. It seems likely, but I'm not entirely sure. (Also, the California requirement DE 542 requirement can occur before the Federal 1099 requirement, as it's triggered when $600 of work is done, not necessarily the later time when it's paid.)
Cathulhu wrote:I'm agreeing with Arthur--take a look at the instructions to the F. 1099-B; since this is not a commercial transaction, the fair market value of the art should be included on a 1099-Misc filed to show the payment to the handy relative. But it's taxable and reportable, as it does not meet an exception to IRC 61.
Don't think that there is any form 1099 filing requirement on elderly relative because the repairs were not part of elderly relative's trade or business.
It's not part of "A"s trade or business, or an organized barter club (which would file a 1099-B), so there's no 1099-MISC (or DE 542) requirement. On the other hand "B" still has to report the income, as a self-employed handyman.
This is slightly off-topic, but not greatly so. We have a vendor who is occasionally our customer. This vendor is one of our main suppliers so we nearly perpetually have open invoices with them. When they purchase goods from us, we send an invoice and instead of issuing direct payment, they issue a credit memo to us for the amount of our invoice. We have created a Barter Account for these transactions and record their credit memos as income. Is there a specific filing requirement (1099 or otherwise) for these transactions that I'm missing?
http://www.irs.gov/pub/irs-pdf/i1099b.pdf wrote: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. .... Persons who do not contract a barter exchange but who trade services do not file Form 1099-B. However, they may be required to file Form 1099-MISC.
It goes on to say that a barter exchange with fewer than 100 transactions in a year do not need to file.
The 1099-MISC instructions state that, in an exchange of services, each party reports the value of his own services (if reportable; that is, if the other party's services were associated with the first party's business.)
At first glance, I don't see a filing requirement, other than one you might have if you were to purchase their services. (There are some new paperwork requirements in ObamaCare which take effect in 2013 for purchases in 2012; in particular, payments to corporations are no longer exempt from reporting.)
http://www.irs.gov/pub/irs-pdf/i1099b.pdf wrote: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. .... Persons who do not contract a barter exchange but who trade services do not file Form 1099-B. However, they may be required to file Form 1099-MISC.
It goes on to say that a barter exchange with fewer than 100 transactions in a year do not need to file.
The 1099-MISC instructions state that, in an exchange of services, each party reports the value of his own services (if reportable; that is, if the other party's services were associated with the first party's business.)
At first glance, I don't see a filing requirement, other than one you might have if you were to purchase their services. (There are some new paperwork requirements in ObamaCare which take effect in 2013 for purchases in 2012; in particular, payments to corporations are no longer exempt from reporting.)
Thank you very much for the information. These exchanges only happen a few times each year so it appears that nothing special need be done. I'm going to make a note for our accountant all the same.
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