The Basics of Bartering

When you think of bartering, you probably think of the olden days. However, believe it or not, bartering is still very much alive and well, just in a more advanced form.   

Today, bartering is when businesses exchange services with one another. The barters that they engage in are taxable. Thus, if your business engages in bartering, any barter income you generate will be taxable to your business in the year that it is realized. You must record this income on your tax return form.

Tax Liability

Though bartering can actually be very useful, many people shy away from it for fear that it will increase their tax liability, something the IRS warns against. While it is true that your tax liability may be increased through bartering, this is really no different than any other type of income.

You might, for example, notice an increase in self-employment taxes, or you might have more types of business income to report. If you’re smart about it, though, and don’t overuse it, bartering can be beneficial and end up not having much of a negative effect on your tax liability.

Reporting Your Barter Income

If you do end up generating some barter income, you can report it to the IRS on Form 1099B. The business that you enacted the barter with will also be reporting the transaction, so do not make the mistake of not reporting it.

Be sure to record and submit the fair market value for the products and/or services that you received as a result of the barter.

Bear in mind, however, that not all barter transactions have to be reported. You do not have to report transactions in the following instances:

·         You’ve had fewer than 100 transactions in the tax year

·         The value was less than $1

·         The barter was enacted with “exempt foreign persons”

If you are unsure of whether or not your barter is exempt, check in with a tax adviser or other tax professional before filing to ensure that you do everything correctly.

In fact, seeing a tax professional is always a good idea since bartering and reporting bartering can sometimes be a bit tricky. With the help of a pro, you can file everything correctly and maybe even catch a tax break or two!