Many businesses engage in barter.
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In fact, before we invented money and had reliable currencies, barter was the mainstay of trade.
In simple terms, any exchange of goods or services that does not exclusively involve one side paying with money is a barter transaction.
Are Barter Deals Taxable?
Do you have to pay taxes on barter deals?
Absolutely. Barter trades are taxable, and any business owner who engages in bartering must understand how to calculate taxes on barter income.
If you file Schedule C, as many small businesses do, you must declare barter income in your gross receipts just as you do with other income sources.
As an example, if you build a website for your printer and he prints some brochures for you in exchange, you must report the value of the brochure printing as income.
The amount of a barter deal that should be declared as tax income is the fair market value of the goods and services received. Income from bartering is taxable in the year it is performed.
You are also required to complete Form 1099-B, the IRS Proceeds from Broker and Barter Exchange Transactions from.
You do of course get to deduct the expenses associated with a barter trade. In the example above, if you paid a designer to build the printer's website, that is a deductible expense that may partially offset the barter income you must declare in your IRS tax forms.
Depending on the nature of the barter exchange, barter may or may not increase your tax burden.
In this tough economy, barter is an attractive option for many business owners. But make sure you understand the tax consequences of barter trades before you start trading goods and services with other business owners.