In the tough times that small businesses are going through today, many business owners are choosing to levy payments for goods and services by bartering.  It’s important to recognize that the fair market value of the goods or services provided or exchanged is still taxable income.

By definition, bartering is the exchange of products or services for another in lieu of paying cash. However, the fair market value of the goods and services must be reported as part of the business at the end of the year.

Here are 4 essential tips on how bartering affects your tax return:
1.     Barter Exchange: Barter usually functions where businesses trade products or services among themselves. No matter whether the business has a physical location or operates over the internet, it is normally required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, at the end of the year to its clients and to the IRS.
2.     Barter Income: For the purposes of tax reporting, barter dollars are equal to real dollars. You must report the fair market value of the products of services exchanged on your tax return.
3.     Taxes: The income generated through bartering is taxable in the year it is performed. Your barter may result in ordinary business income, capital gains or losses, or you might have a nonrefundable personal loss. It may result in liabilities for income tax, self-employment tax, employment tax, or an excise tax.
4.     Reporting: Generally, the rules for reporting bartering services vary based on which form of bartering takes place. You should report this type of income on Form 1040, Schedule C Profit or Loss from Business, or on other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations, or Form 1120-S for Small Business Corporations.

If you are uncertain about how to go about reporting your barter income as part of your tax return, please contact one of our trained and knowledgeable Tax Patriots who can help you understand and file such returns.

Missing a W-2? Here is what you do!

In order to file your 2010 tax return, you need to have all of your financial and tax documents including all your W-2 employment forms. You should receive Wage and Tax Statement, Form W-2, from each employer you worked for in 2010. January 31st, 2011 was the deadline for employers to send you a 2010 W-2 earnings statement.

If you know you should have received a W-2 from a certain employer but haven’t received it, you can follow these steps:

1.   Contact Your Employer: Contact the employer to inquire if and when your Form W-2 was mailed out to you. Make sure they have your correct address on file and have sent it to the right place. Otherwise, it may have been returned to them. After talking to the employer, allow a couple of weeks for them to resend or issue your Form W-2.
2.   Contact the IRS: If you still have not received your Form W-2 by February 14th, contact the IRS for help. The number to reach them is 1(800) 829-1040. You must provide them with your full name, address, city and state, zip code, Social Security Number, phone number, and the following additional information about the employer:
a.   Employer’s name, address, city, state, zip code and phone number
b.   Dates of employment
c.    An estimate of your wages earned and federal tax withheld during your 2010 employment there. You should base your estimate on your final pay stub or leave-and-earnings statement, if that’s possible.
3.   File Your Return: Even if you do not receive your Form W-2, you still have to file your return or request for an extension to file by April 18th, 2011. If you do not receive your Form W-2 by the due date, you may use Form 4852, Substitute for Form W-2. Attach Form 4852 to your return, with your estimated income and withholding taxes as accurate as possible. Your return may be slightly delayed in order to verify the information.
4.   File a Form 1040X: Occasionally, you might receive your missing Form W-2 after your taxes have already been filed using Form 4852. If the information you reported differs from the information reported on the W-2 by a lot, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

To be certain you are doing everything correctly, contact one of our trained Tax Patriots to help you with any questions and concerns. We can provide you with the necessary forms and instruct you on how to fill them out and file them correctly.

You can also download Form 4852, Form 1040X and their instructions from the IRS website.

According to the US Tax Laws, generally, most of your income is considered taxable but in some situations, certain types of income can be either only partially taxable or not at all taxable.

In order to help you understand the difference between taxable and non-taxable income, here are some familiar examples of income not taxable by law:

Ø  Adoption Expense Reimbursements (qualifying expenses only)

Ø  Cash Rebates

Ø  Child Support Payments

Ø  Compensatory Damages for Physical Injury or Sickness

Ø  Gifts & Inheritances

Ø  Meals & Lodging for the convenience of your employer

Ø  Welfare Benefits

There are times when certain types of income are taxable and not in others. Such items include:

Ø  Life Insurance: Surrendering a life insurance policy for cash would mean you must report as income any part of it above the cost of the policy itself. However, if you are paid the life insurance policy due to the insured’s death, it is not taxable income unless it was given to you for a price.

Ø  Non-cash Income: Non-cash income could be considered taxable in some situations. For example, an exchange of property or services, or bartering, should be included in taxable income on a Form 1040 by both parties at the fair market value of the goods or services.

Ø  Scholarship Grant: If you are studying toward a degree, amounts you receive as qualified scholarships can be excluded from taxable income. However, any amount used for room and board do not qualify for exclusion.

Unless specifically excluded by law, all other income including wages, tips, salaries and unemployment compensation must be reported as it is fully taxable by law. To find out more about taxable tips please read this article: Don’t Forget The Tab – Your Tips Are Taxable!

The examples given are not all-inclusive. For more information on how this affects your taxable income, please contact one of our knowledgeable Tax Patriots to help you determine which parts of your income may or may not be taxable.

Contact us for your FREE consultation today and get the most out of your taxes!

There are several reasons to request previous year’s tax information. One of which is for purchasing a home or making any other substantial purchase. Another is if you are delinquent in filing your tax returns or just want to amend a previous year return. In this case you will need a copy of all information transmitted to the IRS such as W2’s or any of the various 1099 forms. This comes in handy if you worked multiple jobs or had a few savings or investment accounts that you might have left off of your return. Do you want to get audited? Of course not! An easy way for this to happen is to leave something off of your return that the IRS already has a copy of. Not only could you be setting yourself up for an audit, but what if you worked a job that you had taxes withheld and are actually due for a larger refund?

The IRS has a great article with 9 things you need to know about getting prior year’s tax returns. If you don’t want to read, here’s an easy to understand run-down(with links to the exact IRS forms needed):

-Obtaining copies of your federal return is FREE and there are 3 ways: web, phone or mail.

-There is no charge for transcripts, you can get these for the current year(usually after 2/15) or the previous 3 years.

-The transcript shows line items from your return as it was filed and includes any forms and schedules that were filed along with your return. It does not show any changes made after filing.

-A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data – including marital status, type of return filed, adjusted gross income and taxable income.

-To request a transcript online, go to the IRS Website, specifically: Order A Transcript. To order by phone, call 800-908-9946 and follow the prompts in the recorded message.

-If you prefer to receive a transcript via mail you can request a 1040, 1040A or 1040EZ tax return transcript by completing IRS Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript need to use Form 4506T, Request for Transcript of Tax Return.

-If you order online or by phone, your tax return transcript should arrive within 5 to 10 days after the IRS receives your request. A mail request, however, takes much longer and can take 30 calendar days for delivery of a tax account transcript if you order your transcripts by using Form 4506T or Form 4506T-EZ.

-For an actual copy of a previously processed tax return, there is a $57 fee for each tax year that you order. If you need an actual copy you must complete Form 4506, Request for Copy of Tax Return, and mail it to the IRS address listed on the form for your area.  Copies are usually available for the current year and go back as far as the past six tax years. It can take up to 60 days to receive an actual copy of your return.

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Keep in mind you can usually amend your previous 3 years of tax returns if you found that you can get a larger refund OR if you did not file, but by doing so you will qualify for a refund through either excess with-holdings or refundable credits you qualify for. These are some of the top-notch services that a JFTS Tax Patriot can assist you with.