A fellow merchant belongs to a barter club and she wants me to join. How would my taxes be affected?

As you know, a barter club allows you to swap goods and services instead of making traditional sales and purchases. But that does not mean you can ignore the transactions for tax purposes. The fair market value of any bartered property or service you receive represents revenues that must be reported on your tax return.

If the barter club uses credit units or trade dollars as a means of exchange, they are treated as actual dollars. For example, when you provide goods or services to a club member, credit units may be added to your account. The IRS says their value is considered income to a cash basis taxpayer at the time of credit rather than when they are “spent” (i.e., when goods or services are received in return). Similarly, the value of units (or trade dollars) you spend may be deductible business expenses.

Our son has received a very generous alumni scholarship. What will happen to the money in his 529 (qualified tuition plan) account if he doesn’t need it all for college?

That’s a pleasant dilemma. Generally, if you (the donor) withdraw funds from a 529 plan for something other than a qualified education expense, you have to pay income tax on the earnings portion of the money you withdraw and there is a 10% penalty. Other limitations may apply — each state’s program is different.

However, if the 529 plan beneficiary (in this case, your son) receives a scholarship, the donor can withdraw an amount equal to the scholarship amount without having to pay the 10% penalty. You will have to pay tax on the earnings. You may also generally transfer the account to another family member without any income tax or penalty.

The general information in Client Line may or may not be appropriate to you. Before applying anything you read to your personal or business situation, you should contact us.

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