Smith Conley & Associates, PC
  • Email
  • Facebook
  • Google+
  • Linkedin
  • Twitter
  • RSS
Follow us on
  • Home
  • Articles
    • For Individuals
    • For Business
    • Tools
    • Estate Planning
    • Tax Humor
    • All Articles
    • Step into the batting cage with us!
  • Answers!
    • Answers
    • Services
    • Asset Protection
    • Uses for your SCA portal
  • Portal Login
  • Contact Us
  • Free Text Alerts
  • Featured Clients
Navigation
Search the site...

Barter – Yes, it’s taxable:

But, the after-tax profit may be greater than you realize

0


Bartering: A taxable transaction even if your business exchanges no cash

It’s good to read the above sentence a couple of times before proceeding to the rest of this post.

A small local business may find it beneficial to barter for goods and services instead of paying cash for them. If your business engages in bartering, be aware that the fair market value of goods that you receive in bartering is taxable income. And if you exchange services with another business, the transaction results in taxable income for both parties.

Income is also realized if services are exchanged for property. For example, if a construction firm does work for a retail business in exchange for unsold inventory, it will have income equal to the fair market value of the inventory.

Barter clubs

Many business owners join barter clubs that facilitate barter exchanges. In general, these clubs use a system of “credit units” that are awarded to members who provide goods and services. The credits can be redeemed for goods and services from other members.

Economic value vs Taxable Income

With all the accounting hassles associated with bartering, you might wonder why anyone even considers it.

The answer is that, under the right circumstances, it can have economic value. To give an example, let’s assume that you sell carpet with a 40% Gross Margin. Let’s also assume that you exchange some carpet with a local estate planning attorney for services. Economically you’ve saved 40% of the cost of the legal work, and the attorney has income equal to the Fair Market Value of the carpet he received.

Required forms

By January 31 of each year, a barter club will send you a Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions,” which shows the value of cash, property, services, and credits that you received from exchanges during the previous year. This information will also be reported to the IRS.

If you don’t contract with a barter exchange but you do trade services, you don’t file Form 1099-B; however, you may have to file a Form 1099-MISC.

Many benefits

By bartering, you can trade away excess inventory or provide services during slow times, all while hanging onto your cash. You may also find yourself bartering when a customer doesn’t have the money on hand to complete a transaction. As long as you’re aware of the federal and state tax consequences, these transactions may benefit all parties.

Related Posts

  • Bartering – cash free, but is it tax free?Bartering – cash free, but is it tax free?
  • Where there’s a Will . . . Where there’s a Will . . .
  • Common sense year-end planningCommon sense year-end planning
  • What happens if the Net Neutrality law is approved.What happens if the Net Neutrality law is approved.
  • A Tax Court decision you’re going to hateA Tax Court decision you’re going to hate
  • The fiscal cliff effect by age groupsThe fiscal cliff effect by age groups
  • Author
  • Recent Posts
Follow us
David Conley
David is a partner at Smith, Conley & Associates, PC. In addition to writing and tax consulting, he is active in the pro-life community serving as President of the Fayette County Right to Life chapter of Georgia Right to Life.
He is also a founding Board Member and Finance Director of the Fayette Pregnancy Resource Center and serves on the Board of the National Equal Rights Institute.
Follow us
Latest posts by David Conley (see all)
  • Thanksgiving Items - November 25, 2020
  • Do you receive Social Security, Civil Service, or VA Benefits:

    There's some good news and some bad news

    - November 23, 2020
  • Simple in Sixty – Excel Tables:

    Learn Excel Table tricks in just 60 seconds

    - November 17, 2020
barter, exchange, services

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *


By submitting this form, you are consenting to receive marketing emails from: Nichols, Cauley & Associates, LLC, 135 Brandywine Blvd Ste A, Fayetteville, GA, 30214, http://www.cpatax.net. You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact

This site uses Akismet to reduce spam. Learn how your comment data is processed.

  • rickviall
  • joey
  • spowell
  • seneyfooter1
  • dondychefacebook1
  • rickviall
Copyright SCA @2016