Table of Contents
Table of Contents
Bartering is a good tool to improve your business performance.
Many small businesses find it very convenient to barter with
their associates. However you need to be aware of the tax
implications. When there was no commonly acceptable currency,
people used to barter. This method has still retained its
importance in the modern times. It is still very popular
especially in small businesses. Do note, while we would love to,
we do not currently offer bartering for the following services:
New Mexico registered agent
Consider the case of an IT professional. He may develop a
website for the printer and in return the printer can deliver
his business cards and brochures. Then consider the case of a
small trader who can trade his slow moving goods with another
trader and get some better once. These are all barter
transactions. They are acceptable to IRS, but with a pinch of
salt!
IRS is very reluctant to allow taxable income go out of its
hands without any charge. So naturally there are no loopholes
for saving in taxes by bartering. As per the IRS rules, the true
market value of products and services bartered must be included
in your accounts. Similarly the cost of goods and services given
away in these transactions in a particular year should be
included. So there is no chance of lowering your tax liability
from bartering transactions.
However, you can still plan to reduce your tax liability in
bartering transactions. This is because of the word 'fair market
value'. So if you are bartering slow moving goods against some
fresh stock, the fair market value of the slow moving goods will
be always lesser. So you are automatically showing less
realization value. For the services you are rendering, the fair
market value will be the one you are deciding!
So while filing your tax return, if you are
filing for an LLC or
Corporation you have to declare the income from bartering
transactions during that year in your total receipts. You must
also file Form 1099-B which must be completed by the taxpayers
who have received proceeds from broker and barter exchange
transactions.
Remember, you can always deduct expenses incurred in bartering
transactions. So if you are paying for transportation cost to
deliver your goods during such a transaction, this cost is
always deductible as an expense. And this can offset the income
you derived from bartering.
If you barter for an asset like a computer, then you need to
depreciate such asset as per the allowable rates and find out
its net value. This will decide the amount of capital gain or
capital loss from this transaction.
Bartering is very convenient method of business in present times
also. There are hundreds of exchanges available throughout the
United States. Some of them are available even online. The
bartering transactions are estimated to cross $3 billion in the
last year. You need to be very careful about the fees these
exchanges charge. Many of them charge 6% on each transaction. So
the advantage of bartering is lost due to its expensive nature.
Due care must be taken to keep proper documentation and
supporting to justify your dealings. The barter exchanges are
required to report their entire transactions to IRS, so there
will be always cross verification done by IRS with individual
accounts.
One gentleman on Craigslist
even bartered a cell phone
until he had a
vehicle.
New Mexico Corporate Services
Thank you for taking the time to read our page. Beyond resource articles, we offer numerous services designed to make opening and running your company easy. We can help you form an LLC in New Mexico and act as your registered agent in New Mexico.