We live and work in a time where money is tight for everyone. Therefore it may come as no surprise that bartering, the trading of goods & services for other goods & services, has become increasingly popular. Bartering allows a business to retain cash while still getting needed goods & services. Plus, bartering is one way to offset cash shortfalls.
In an individual setting, this might be cutting my neighbor’s lawn if he fixes my leaky pipe. In a business setting, a roofing company might be willing to swap a roof resurfacing for new computers from a computer manufacturer. Or, an attorney might prepare a partnership agreement for an auto dealership in exchange for an automobile. The values of the items exchanged (bartered) would be resolved between the parties.
While these arrangements might be beneficial to a business looking to grow, there are some bookkeeping, taxation, and accounting issues that need to be addressed. A barter exchange is actually two or even three individual transactions put together. Each of these transactions needs to be recorded at fair value on the books of the business. The value of your services would be an increase to your revenues, and the cost of goods received would be posted to an expense or asset account.
Income from bartering is taxable the year it occurred. The rules for reporting barter transactions may vary per transaction, so it is wise to consult with a professional should you have any uncertainties.
Barter clubs are popping up all over the country. Some charge membership fees, some do not. Some might have transaction, service, or annual fees. The more sophisticated ones even have actual accounts on behalf of the membership. These would keep the tally of the difference between the value of the services given up during the year versus the value of the goods or services used.
With the increase in sophistication of these clubs and the values of the transactions that can occur, you can be sure the IRS is looking at them as well. Don’t ignore them and I’ll trade you my tape dispenser for your stapler.