J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Business Income

Whether you work full-time or part-time, income received for your business activity is part of your business income. How you report it depends on your accounting method (explained in Chapter 4).

Where you report it depends on how your business is organized. For example, self-employed individuals report income on Schedule C or Schedule C-EZ or on Schedule F if the business is farming. Partnerships and LLCs report income on Form 1065, S corporations use Form 1120S, and C corporations report income on Form 1120. Where to report income is explained at the end of this chapter.

Payment Methods

Most business transactions are in cash. For tax purposes the term cash includes checks, credit card charges, PayPal, and smart cards. However, in some cases, payments may take a different form.

CAUTION

Bartering does not avoid sales taxes. For example, if you barter your goods to dispose of excess inventory, be sure to follow the same sales tax rules that you would if you had been paid in cash. See Chapter 29.

PAYMENTS IN KIND

If you exchange your goods or services for property, you must include the fair market value of the property you received in income. Bartering does not avoid the requirement to report income. This is true whether you barter directly—one-on-one—or receive property through a barter exchange that gives you credit for the goods or services you provide. Bartering through a barter exchange is reported to the IRS on Form 1099-B, Proceeds from Broker and Barter ...