If two taxpayers have exchanged services and have both agreed ahead of time as to the value of the services, that value will be accepted as the fair market value unless the value can be shown to be some other amount. In most situations, the income received from bartering should be included on Schedule C to report the profit or loss from a business in the year the goods or services were received. However, if the barter involved an exchange of something other than services, then another form or schedule may be more appropriate. If the recipient of bartered services or goods is in a trade or business, he may deduct any costs incurred to perform the work that was bartered.

Barter exchanges are becoming more and more popular through the Internet. A barter exchange is any business with members that contract with one another or with the barter exchange to jointly trade or barter property or services. The term "barter exchange" does not apply to arrangements that facilitate the informal exchange of similar services on a noncommercial basis. All barter exchanges are required to file Form 1099-B for all transactions engaged in by its members unless certain limited exceptions are met. The Form 1099-B should show the value of cash, property, services, credits or scrip received from barter exchanges during the year.

When a taxpayer joins a barter exchange, he must certify under perjury penalties that the given tax identification number is correct and that the taxpayer is not subject to backup withholding. Taxpayers who receive income through bartering may be required to make estimated income tax payments.

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