I've been baby sitting for favors with friends for the last several years. I babysit for an afternoon, they help with yard work, that sort of thing. This year I started babysitting for someone in exchange for her professional services, and I expect to receive around $1500 of services from her by year end.
Am I considered to be earning income equal to the cost of the services she's providing? How do I report this on my tax return? Do I owe self-employment taxes on this money I never received? Does this count as earned income for the purposes of funding an IRA and the like?
You are correct that the IRS requires that you report the value of your services as income, even if you received other services (or products) in exchange for your services and did not receive any cash.
Babysitting is a trade or business and you would report this business on Schedule C of your 1040. You are allowed to deduct any costs you may have incurred in your business as well (did you advertise for your services, purchase items used specifically for this business, etc?).
If your net earnings from this business is greater than $400 then you will owe self-employment taxes on your net earnings. Your net earnings from self-employment is considered earned income for the purposes of funding an IRA.
Saturday, October 20, 2007
Income from Barter