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Our friends and we have an informal agreement that we will babysit eachother's kids when necessary. We don't pay any cash to each other for the service, but we agree to "repay" by providing the same favor.

An accountant friend told me just recently that our arrangement is actually a form of barter and may be taxable. It seems that bizarrely, he might be correct. I can't imagine the IRS finding out about our babysitting group, but I like to follow the law, no matter how outrageous.

I'm curious to get some more input.

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  • 89
    Your accountant friend... is perhaps the sort of person people think of, when someone says "an accountant". May 25 at 20:04
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    I don't think barter includes mutual favors in a non-professional setting. The page you link to is heavily focused on businesses exchanging services they otherwise do charge for. The fact that any of you could charge each other does not seem like enough to establish that you are involved in barter.
    – chepner
    May 25 at 20:27
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    @chepner Would it change then if one of the friends does in fact babysit professionally as well ? May 25 at 20:37
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    "What the IRS doesn't know of cannot be taxed"
    – sam
    May 26 at 4:50
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    Is your accountant friend going to report you? Maybe you should stop telling them such miniscule details. I do not know a single person in the history of forever that would claim babysitting services on their taxes unless they had a registered business. This accountant sounds like the "ackchyually guy" meme or someone that says "technically correct is the best kind of correct".
    – MonkeyZeus
    May 26 at 14:22
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I wouldn't worry about it.

This is from the IRS:Topic No. 420 Bartering Income

Bartering is the exchange of goods or services. A barter exchange is an organization whose members contract with each other (or with the barter exchange) to exchange property or services. The term doesn't include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis (for example, a babysitting cooperative run by neighborhood parents). Usually there's no exchange of cash. An example of bartering is a plumber exchanging plumbing services for the dental services of a dentist.

The part I bolded explicitly says that a small informal babysitting group isn't a barter exchange.

That saves a lot of tax forms.

The Internet has provided a medium for new growth in the bartering industry. This growth prompts the following reminder: Barter exchanges are required to file Form 1099-B, Proceeds From Broker and Barter Exchange Transactions for all transactions unless an exception applies.

Publication 525, Taxable and Nontaxable Income

Discusses bartering but the examples have more to do with barter exchanges and small business.

Bartering

Bartering is an exchange of property or services. You must include in your income, at the time received, the FMV of property or services you receive in bartering. If you exchange services with another person and you both have agreed ahead of time on the value of the services, that value will be accepted as FMV unless the value can be shown to be otherwise.

Generally, you report this income on Schedule C (Form 1040). However, if the barter involves an exchange of something other than services, such as in Example 23, later, you may have to use another form or schedule instead.

Example 20.

You're a self-employed attorney who performs legal services for a client, a small corporation...

Example 21.

You're a self-employed accountant. You and a house painter are members of a barter club. ....

Example 22.

You're self-employed and a member of a barter club. ...

Example 23.

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....

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    I'd note that the quote you get specifically addresses a babysitting cooperative; it may be worth emphasizing. May 26 at 9:20
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    I put it in bold. Thanks. May 26 at 10:01
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    @CorvusB to me your comment seems to be making a distinction without a difference. "Specifically address a babysitting co-op" and "use a babysitting co-op as an example" serve the same function: to explicitly state that a babysitting co-op is excluded from barter-as-income concerns. Whether the co-op is a specific exclusion or an example of a general exclusion is not relevant to the question. May 26 at 23:16
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    @TimSparkles - Maybe, but they've got a good point that it's not defined through babysittingness, but rather by the similarity of the reciprocal services (i.e., X for X is excluded, X for Y taxed as barter). An irrelevant point for the OP, potentially useful for others. May 27 at 20:08
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    I think the key phrase in the quoted IRS topic is "similar services on a noncommercial basis". That is, like for like (plumber and dentist provide non-similar services), and not your business (plumber and dentist normally earn their income via those services). However, I'm not a lawyer, accountant or other tax professional. May 28 at 14:16
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Your accountant friend is probably right, technically. But possibly not in reality.

The IRS, being human beings, probably don't care. They would probably be annoyed if this arrangement was brought to their attention, because they might actually have to investigate it, creating more work for them and generating virtually no extra tax. And many of the people doing the investigating probably have similar arrangements which they don't want to pay taxes on. The chances of you being investigated for this are pretty much zero.

As a defence in law, which you can present to your accountant friend and the IRS if they should happen to come investigating, is to consider whether there is an actual barter agreement. In other words, do you actually agree that person A will babysit once (or some number of times), and in return person B will babysit some number of times? Are there penalities if one person doesn't fulfil their side of the agreement? If so, barter may enter into it.

If, on the other hand, you just babysit for them when they need it, and they babysit for you when you need it, and nobody keeps track of how many times each person does it, then there isn't a barter element. If there is no record tracking, and no penalties if someone doesn't meet their "agreement" (like you keep babysitting even though you haven't needed them to babysit for you for a while) then that adds weight to the lack of barter.

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  • "The IRS agents wouldn't want this done to them, so they won't enforce the law" huh? May 25 at 22:02
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    @CodyBugstein Rather than they "won't enforce the law", I suspect it's more a case of they "won't interpret the rules" (to include informal babysitting arrangements between friends as "bartering").
    – TripeHound
    May 25 at 22:46
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    @CodyBugstein: What's the law, though? It could easily be claimed that the babysitting has negative value: that is, I profit by spending enjoyable time with your kids. (OK, maybe not kids, but I occasionally critter-sit for friends' dogs & horses. I enjoy doing it, so it could be argued that I should be paying for the pleasure :-))
    – jamesqf
    May 26 at 3:39
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    Sooooo, "I'll show you mine if you show me yours" is taxable in USA? May 27 at 16:40
  • @MatijaNalis I wouldn't assume so; is there a “fair market value” for that?
    – wizzwizz4
    May 27 at 17:28

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