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!
by Deimos Tel`Arin, on January 17 2008 @ 12:02 am
Well hello there fellow EntreCarder!
Interesting write up, aye.
Well, I am living in Malaysia and I don’t think EntreCredits should be taxable!
Now should something like that happen I would be very pissed off!
Deimos Tel`Arin’s last blog post..By: PostOnFire.com
by admin, on January 17 2008 @ 12:10 am
Hello to You!
I certainly agree they shouldn’t be taxable, but under certain circumstances they very well may be!
I don’t know anything about taxes in Malaysia but I hope they are better there than here!
by archondigital, on January 17 2008 @ 5:37 pm
I’m from the Philippines and I think something similar about fair market value and bartering is also on our tax laws.
Fortunately for us, our internal revenue system is still not fully capable of taxing its citizens for services or items traded over the internet.
archondigital’s last blog post..Setting My Priorities Right
by Rob, on January 17 2008 @ 10:51 pm
What about when entrecard credits sell for cash. Same deal?
by admin, on January 17 2008 @ 10:55 pm
When you sell Entrecard credits for cash then that is almost certainly taxable income!
by Deimos Tel`Arin, on January 18 2008 @ 5:54 am
When you sell Entrecard credits for cash then that is almost certainly taxable income!
My Gown-Own-Ment totally suxx0r!
Bunch of mofos!
I dun want to pay them too much taxes! -_-
Deimos Tel`Arin’s last blog post..BIG FAT JUICY EMOTICONS Up for Grabs!
by Matt Ellsworth, on January 18 2008 @ 5:34 pm
Interesting. So what your saying is that people who play MMORPG’s and do things in those games that generate in game credits (which have a real world value sometimes) - need to report income from playing the game and earning their character credits?
Matt Ellsworth’s last blog post..Measure Blog Success without Spending a Fortune
by admin, on January 18 2008 @ 5:40 pm
Matt… Probably not, it would only be if they are selling those credits for real money or services in the outside world, on a more than occasional basis. I knew someone who made a business of selling MMORPG credits and developed characters!
by Matt Ellsworth, on January 19 2008 @ 9:19 pm
I know people who have done it as well - thats why i brought it up.
For some reason I thought you were saying that when I drop cards and sell ads on my site I would have to declare a fair market value for that. If thats true then you have to first determine a market value for something where there otherwise was no market value.
Matt Ellsworth’s last blog post..InSTEDD Uses Social Media to Warn of Emergencies
by Nhuong Son, on January 20 2008 @ 1:50 am
Good article, you got me thinking about entrecredits in general. wrote up a bit on entrecredits and their worth in my blog.
Nhuong Son’s last blog post..Inflation in the EntreCard Economy, EntreCard Chaindroppers Stop and Read!
by Bolkie, on February 3 2008 @ 5:33 pm
I dont understand. These fictional credits, how do they translate into monetary value?
Bolkie’s last blog post..Extreme Hangover
by StuffGuy, on February 7 2008 @ 2:16 am
Interesting read for sure. It would be nice if barter trading was exempt from tax though. Makes you think about other online economies too, such as the credit systems used by a lot of forums (and ofcourse MMO money).
StuffGuy’s last blog post..By: Stuff Guy
by Lloyd Lopez, on February 12 2008 @ 8:55 am
Interesting article you have here. I don’t believe that Entrecard should be taxable since its just a form of e-money. Now, if someone uses it to get money in exchange for Entrecard credits then it will be a different story.
Lloyd Lopez’s last blog post..Windows Vista Service Pack 1 Downloads
by mmorpg, on March 10 2008 @ 8:43 pm
I wasn’t aware EntreCard, or the idea of it existed. Seems pretty neat. Sucks that the money is taxed…seems they find a way to tax everything.