The A-Team Newsletter
News, Tips & Advice from the Tax Experts
Does your business barter with other businesses? There are times when it might be beneficial for your small business to barter in lieu of cash, offering your services or product for something you need. Bartering has implications at tax time that you must be cognizant of, and thus prepare for, when you have your taxes professionally prepared.
Cashflow or liquid cash can often be a concern for a small business. There are times that a mutually beneficial arrangement with another small business, with no currency involved, just makes sense. Bartering is not unusual. Imagine a plumber whose truck needs a new transmission and a mechanic that needs a new water heater. There's little reason not to trade services and let both companies benefit.
Always consider the following when bartering:
Barter exchanges are marketplaces where businesses may barter with each other. These might include physical facilities or a an online presence such as a website or phone app. A Barter Exchange will send you a 1099-B each year that you use them.
When it comes to the IRS, anything you receive in your barter is real income based upon the fair market value of the goods or services. therefore, the IRS requires it to be included on your tax return.
Each time your business barters, remember that everything your receive, whether product or service, is taxable in the year you receive it. Your tax professional can also help you identify those specific circumstances where it may also add to your employment, self-employment and / or excise taxes. This is an important issue and it is imperative that you seek the guidance of your tax professional.
Ask your CPA about the correct reporting method for all of your bartering income. He or she will follow up with you to identify the type of bartering that was done. A CPA will be invaluable to make sure your tax return is prepared according to the exact IRS protocols.
For more details about businesses bartering with each other, visit the Bartering Tax Center on the business section of the IRS.gov website.