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!