Bartering is subject to tax

February 19, 2018 Written by

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.

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. In addition, bitcoin transactions are handled much the same as bartering.

Feel free to contact the office if you have any questions on bartering or virtual currency transactions.

 

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Written by: Doug Rodrigues