Originally Posted by cheryl rearick
I wonder if the IRS would even have to be involve from a legal sense. For one thing the fabric has already been account for, paid and stor owner pays taxes on it. A store owner is also allowed to use so much of the materials to put on display (as in quilts) and use as a write off. Seems I asked my sister in law that question. So to work for material, that is already taxed? (I would think would not be a problem for the store owner) Plus if someone is injured in a shop, shop should hae coverage in that area??? ( I really do not know) second guessing,
Oh, but the IRS is very involved, and has been going after fabric shop owners by the hundreds for these very common practices. It's been well covered in the fabric shop trade press.
Basically, the IRS wants someone to pay income tax and FICA on every dollar that every employee gets paid, no matter in what form they're paid, money, fabric or buttons. And various state and local laws apply to unemployment insurance, workman's comp, etc.
There are very strict rules concerning payment of employees and there are labor laws that enforce those rules. As a shop owner, you could call your employee a "contract" worker, pay them in fabric, and deduct the value of the fabric given. But you have to track and report that value to the IRS and to the employee, who in turn has to report it as income. The IRS is going to get their pound of flesh one way or the other. There are also a bunch of rules about what constitutes a contract employee, what benefits have to be provided, etc.
I would urge that shop owners, and indeed anyone proposing to work under barter arrangements, consult with their tax attorney before they get into trouble, not after...