Barter Transactions

In today’s economy, small-business owners sometimes look to the oldest form of commerce — the exchange of goods and services or bartering. The Internal Revenue Service wants to remind small-business owners that bartering transactions generally have associated tax reporting, accounting and record-keeping responsibilities.

Bartering is the trading of one product or service for another. Usually there is no swap of cash. Barter may take place on an informal direct one-on-one basis between businesses and individuals, suppliers, customers, distributors, partners, contract labor, and employees, or it can take place on a third-party basis through a modern Internet barter exchange.

Bartering is an exchange of one taxpayer's property or services for another taxpayer's property or services. The fair market value of property or services received through barter is taxable income. Be sure to use a reasonable fair market value for the property or services received in a barter transaction to include in your income. The transaction is not a wash if you report the fair market value of the property received that is greater than your cost or basis in the property given up.

For example: if bowling equipment given up has a cost or other basis of $500 to you there is a $500 gross profit on the transaction if the fair market value of the fishing equipment received in the barter exchange is $1,000. Simply put, you should identify the transaction in your records and report the income and any related business deductions and cost of goods sold on your tax return.

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