I’ve just recently become involved with Entrecard. Entrecard is a networking site for bloggers that involves “dropping” your card on websites and having cards dropped on yours. Sort of like the calling cards of old. I have found Entrecard to be a great marketing tool and it has already brought tons of traffic to my site.
Thanks to Entrecard I have also found plenty of interesting sites that I might never have found otherwise! I’ll be featuring some of them in another post, in my newly added Off-topic category!
Now on to taxes. At Entrecard you earn “credits” (some are now calling them entrecredits) by dropping your card on sites, and by selling ads on your site. You can then use those credits to buy ads on other sites. Simple enough so far. But a whole economy is springing up where people are buying and selling other goods and services using entrecredits. Today people are selling advertising, web consulting, and even cookie recipes using entrecredits. That brings up an interesting question, are these taxable events? Do the sellers need to report taxable income when all they have received are entrecredits? The answer is a surprising probably!
Now if you don’t reside in the US, your tax laws are different and I really have no idea! But for those US businesses that are buying and selling goods and services, using entrecard credits is pretty much the same as bartering. Many barter clubs create their own type of “currency” to help keep track of transactions. According to the Internal Revenue Service, bartering creates taxable income. Here is what the IRS has to say about bartering.
Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of goods and services exchanged must be included in the income of both parties.
Fair market value is what you would have charged that person if they were paying you with money. For example, if I were to offer to do your business tax return for 50,000 entrecredits, I would need to include $450 in my income for the preparation of that return. (Sorry, I can’t accept entrecredits for tax preparation. For more info on tax preparation click here.) If you design those nice 125 X 125 ad boxes and you normally charge $5 each, but will also accept 50,000 entrecredits for the same service, then you need to include $5 in barter income on your tax return. Notice it is not the number of entrecredits that is important, it is what you normally charge that sets what the taxable income is.
This is only a very basic overview of barter income and the possible tax consequences of buying and selling goods and services using entrecredits. Being the IRS there are exceptions to every rule! Only someone who knows your particular tax situation can advise you on your particular situation.
If you have any questions please feel free to leave them here, I’ll do my best to answer them. You could also visit my forum, where I hope to have a lively discussion!