You’ve probably heard stories of bartering. Back in the day, you might exchange something you had for something that you needed. This “something” could be goods or services. In simpler times, a cobbler might re-sole a pair of shoes in return for a specific amount of eggs from the farmer. Today, bartering is making something of a comeback. Even some small businesses are finding it helpful to barter for goods and services.
Bartering for What You Need
In some cases, you might be lacking the capital you need to hire certain services, or buy needed supplies. It can be difficult to get the loans you need to pay for needed business products and services when you are in a pinch. However, you might have something valuable to offer another business. This is where bartering can come in. You can exchange a product or service you can provide for what you need.
There are a few business bartering exchanges online that can help you find other businesses who are willing to participate in these types of transactions. You can go through ITEX, BizXchange and The Barter Network. You can also use the National Association of Trade Exchanges as a valuable resource when finding bartering opportunities. Be aware, though, that these bartering networks might comes with costs, and you should know what they are before you agree to participate. Understand the terms and conditions prior to beginning so that you can avoid difficulties with the network.
Bartering the Right Way
Bartering only works when both parties feel as though they are getting a fair exchange. This means that you need to understand how your offering is valued, and you should have a good idea of how to value what you are looking to trade for. You want to ensure that the exchange is as equitable as possible. Most bartering exchanges can help you prepare contracts, or they can set up a way of valuing exchanges. If you don’t use a third party to help you with your bartering transactions, it is still a good idea to create a barter contract, spelling out the terms of the exchange, and what each party can expect.
Realize, too, that the IRS wants to know about your bartering transactions. This means that you need to keep good records of your bartering history. If you have a contract, make sure that you retain a copy, and that there are additionally copies that you can send off if necessary. You can set up barter agreements much as you would cash agreements, and report them as barter revenue (to be offset by the barter services you provide). Make sure that you clearly state that the revenue/expenditure is barter.
Realize that if you come out ahead on a barter transaction, you will have to pay taxes on what is considered income. But you also have to be careful of claiming losses related to bartering. The IRS does not looking kindly on people who give away their services, and claim deductions, insisting that they came out behind in a barter transaction.
It can help to consult with a tax professional before you claim any sort of barter transaction on your tax return. Keep good records, know the rules, and stay on top of things, and you shouldn’t have too much trouble with the IRS.
Have you ever bartered for goods or services?
Photo credit: berniebernardo