“I made X amount of dollars from sales. That’s what I want to declare. Obviously the art I traded for framing doesn’t count.”
Unfortunately this statement is incorrect. There is a widely held perception that trading or bartering is not taxable. It is. You are supposed to declare and include the value of what you receive as income on your Schedule C.
The example given has to do with bartering a physical object, a painting, for something in return. If you trade services for something in return, the value of your services must be in included in income as well.
For instance, if you are a film editor who also makes movies, if you trade some days of your editing services in exchange for the use of a filmmaker’s camera, the value you both put on this exchange must be put into your income.
There are bartering exchanges who will send you a 1099 for the value of the work or services that have been provided.
The good news is if you barter for a business expense, then you can deduct the amount you put into income for what you bartered for. For example, you sell your paintings for $1,000 and you traded one painting for frames that you would have paid $1,000 for. You include $1,000 into income and then deduct $1,000 for frames. If the framer is an individual, don’t forget to send a 1099. (Please see the page “Estimated Taxes for Freelancers” elsewhere on this site for information on fiing 1099’s.) For the film person’s example given above, the amount she agreed on will go into income and be able to be deducted as equipment rental.
If you, however, trade for dental work, you can’t take the expense as a business expense on Schedule C though you might be able to as a medical expense on Schedule A.
Let’s be clear: trading or bartering your work is not gifting your work. Why? Because you are receiving something in return for it. If you in fact give away a painting or whatever kind of art you make and receive nothing in return, then there is no additional income to you. Gifting is not considered barter. As discussed elsewhere on this site at “Can I Deduct My art When I Contribute It”, gifting your own work to a non-profit will generally get you a zero deduction because you’ve probably already deducted the expenses that went into the work. You are not able to get a charitable contribution for the fair market value as are the people who own art but did not create it. Contributing services to a nonprofit does not result in a tax deductible deduction. Gifting to an individual does not result in either income or a deduction but may require a gift tax return if large enough.