So let’s say I’m an artist. My art is composed of found objects and things in nature. So I don’t buy any art supplies. I live in a loft above a gallery (all utilities included), the owner of which sells my work. I live in the loft free of charge, because the owner is my best friend and likes me and the fact that he/she sells my work is secondary to the arrangement. I also have a good friend who is a farmer, who likes me so much he gives me food in exchange for me giving him pieces of my work, as he’s also an art collector.
So I have no need for money. However, when I was a child I got a Social Security card and worked a little job one summer, so I’m on the I.R.S. radar. One day a bored I.R.S. agent decides to check up on me and see why I haven’t paid any federal income tax in the last 25 years. When I describe my situation does the agent say, “Okay, you’re cool.” or “You’re in a heap of trouble boy.”
Barter below the level of taxable income, which you situation seems to be is not taxed. You have to earn some huge amount, like three thousand dollars in a year before you are even subject to taxes. Even in that case, you get break with the standard deduction.
Now, if you get actual money from anyone, that counts toward the total. If the total goes over the magic number, you have to file, although you probably don’t owe anything. Failure to file is a misdemeanor, but even IRS guys hate spending a week recapturing a thirty cent delinquency. Seven years later, you are home free, unless you actually owed money, in which case they can come in and steal all your assets. Since you have none, that risk is fairly minimal.
Even IRS would have to prove fraud to send you to jail.
[QUOTE=randwill]
I also have a good friend who is a farmer, who likes me so much he gives me food in exchange for me giving him pieces of my work, as he’s also an art collector.
Tris–OP is describing getting all of his food based on bartering his artwork. I think even for a single guy, you could easily hit the $3k/ yr amount. I’m assuming he’s bartering for clothes and other necessities as well. OP may still be below the threshold for paying taxes, but it’s not a given.
I’m not an accountant or a tax lawyer. Here is what the IRS has to say about the subject:
[QUOTE=IRS Publication 525]
Bartering
Bartering is an exchange of property or services. You must include in your income, at the time received, the fair market value of property or services you receive in bartering. If you exchange services with another person and you both have agreed ahead of time as to the value of the services, that value will be accepted as fair market value unless the value can be shown to be otherwise.
Generally, you report this income on Schedule C or Schedule C-EZ (Form 1040). However, if the barter involves an exchange of something other than services, such as in Example 4 below, you may have to use another form or schedule instead.
Example 1.
You are a self-employed attorney who performs legal services for a client, a small corporation. The corporation gives you shares of its stock as payment for your services. You must include the fair market value of the shares in your income on Schedule C or Schedule C-EZ (Form 1040) in the year you receive them.
Example 2.
You are a self-employed accountant. You and a house painter are members of a barter club. Members get in touch with each other directly and bargain for the value of the services to be performed. In return for accounting services you provided, the house painter painted your home. You must report as your income on Schedule C or Schedule C-EZ (Form 1040) the fair market value of the house painting services you received. The house painter must include in income the fair market value of the accounting services you provided.
Example 3.
You are self-employed and a member of a barter club. The club uses credit units as a means of exchange. It adds credit units to your account for goods or services you provide to members, which you can use to purchase goods or services offered by other members of the barter club. The club subtracts credit units from your account when you receive goods or services from other members. You must include in your income the value of the credit units that are added to your account, even though you may not actually receive goods or services from other members until a later tax year.
Example 4.
You own a small apartment building. In return for 6 months rent-free use of an apartment, an artist gives you a work of art she created. You must report as rental income on Schedule E (Form 1040) the fair market value of the artwork, and the artist must report as income on Schedule C or Schedule C-EZ (Form 1040) the fair rental value of the apartment.
Form 1099-B from barter exchange. If you exchanged property or services through a barter exchange, Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, or a similar statement from the barter exchange should be sent to you by January 31, 2007. It should show the value of cash, property, services, credits, or scrip you received from exchanges during 2006. The IRS also will receive a copy of Form 1099-B.
Backup withholding. The income you receive from bartering generally is not subject to regular income tax withholding. However, backup withholding will apply in certain circumstances to ensure that income tax is collected on this income.
Under backup withholding, the barter exchange must withhold, as income tax, 28% of the income if:
*
You do not give the barter exchange your taxpayer identification number (generally a social security number or an employer identification number), or
*
The IRS notifies the barter exchange that you gave it an incorrect identification number.
If you join a barter exchange, you must certify under penalties of perjury that your taxpayer identification number is correct and that you are not subject to backup withholding. If you do not make this certification, backup withholding may begin immediately. The barter exchange will give you a Form W-9, Request for Taxpayer Identification Number and Certification, or a similar form, for you to make this certification. The barter exchange will withhold tax only up to the amount of any cash paid to you or deposited in your account and any scrip or credit issued to you (and converted to cash).
[/QUOTE]
Opus, casual exchange of favors, such as “I let him live in my loft, cause he is sooooo cool, and anyway, he’s my best friend.” don’t rise to the level of income, since the exchange is not legally conditional.
Bums in the street get meals delivered by charitable organizations. Every time I get a meal delivered it costs me twenty bucks. That doesn’t make it twenty a day in income for the bum. Now, if the exchange is a formalized agreement, it is income. I suppose the farmer in the dell might be making a true barter exchange, if there is some consideration of art for food, each time.
Judging from what others have linked, the rent free situation probably does not have to be reported (as long as your being allowed to live there because your a friend).
If you stopped giving your buddy/landlord art pieces to sell, would he/she kick you out? If so, then that would be an exchange (barter) of goods and services as defined in Gfactor’s links.
Definately, the exchange of art for food seems to be required as reportable. (For both parties.)
[QUOTE=mlees]
Judging from what others have linked, the rent free situation probably does not have to be reported (as long as your being allowed to live there because your a friend).
SNIP
[/QUOTE]
I suppose the free rent would probably fall under gifts, so the first $10K wouldn’t be taxable in any case.
While I suppose in some places a spare bedroom would cost more than $835, anywhere with nearby farmers wouldn’t have those kind of housing prices.
