Posts Tagged "Bartering"

Can bartering be an effective business strategy?

Posted on Feb 10, 2017

Have you ever thought about bartering as a way to get the goods and services you need for your business? A growing number of businesses are finding ways to use the bartering system as a means to avoid using up their company’s cash. A simple bartering arrangement involves two parties trading items of similar value. For example, let’s say your business owns a building located next to a telephone company. An internet service provider might be interested in storing its servers in an unused portion of your basement. Instead of paying rent, they offer to provide you with a high-speed internet connection and website. Complicated bartering may now take place through bartering clubs that give members credits for items or services they contribute. Members can then use the credits to pay for goods or services offered by other club members. This service offers a convenience to businesses, as it can be difficult to find the businesses that offer what you are looking for when searching on your own. It’s important to note that there are income tax consequences to bartering. To be safe, view your trades as if cash changed hands, since the goods and services are valued for tax purposes at their fair market values and taxed accordingly. Also, a bartering arrangement does not always result in a deduction immediately equal to the income you recognized. You might provide a service and recognize income immediately in exchange for some equipment you will end up depreciating over several years. Please call us if you need more information about implementing bartering as a strategy to help your...

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Business Alert: Bartering has tax consequences

Posted on Apr 20, 2012

Did you know there’s a way to get goods and services you need for your business without using up your company’s cash? A growing number of businesses are using the barter system to supplement their normal purchasing activity. Bartering is a payment method in which goods and services are exchanged between parties in lieu of cash. In a simple bartering arrangement, two parties trade items of similar value. For example, let’s say your business owns a building located next to a telephone company. An Internet service provider might be interested in putting its servers in an unused portion of your basement and, instead of paying you rent, offers to provide you with a high-speed Internet connection and a website. Before you consider jumping on the bartering bandwagon, though, it is important to be aware of the tax consequences of these transactions. While your first thought might be that bartering is a simple exchange of goods or services with no tax implications, the tax authorities have other ideas. The IRS requires that the fair market value of goods or services received in a bartering transaction be recognized as taxable income. However, the business can deduct the fair market value of the business goods or services that were tendered in exchange. A bartering arrangement doesn’t always result in a deduction immediately equal to the income you recognized. For example, you might provide a service and recognize income immediately in exchange for some equipment you’ll end up depreciating over several years. Records of bartering transactions should be maintained just like ordinary transactions to maintain compliance with sales tax laws. The growth of bartering has also led to a number of companies that bring parties together and facilitate bartered transactions. Such companies operate much like a bank, whereby clients register with them and earn “trade” credits in an account that can be used against future transactions. The normal fee structure is a one-time registration fee with a fee per transaction based on its dollar value. If you have any questions about bartering, please give us a...

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