Cash-strapped businesses must make every dollar count. Excess inventory is a drain on resources as is idle unbilled time.
Increasingly companies are turning to barter as a way to boost sales by converting excess goods and capacity into something that can be used for business. And they’re doing it while saving precious cash for those things that require money to buy.
Different forms of bartering have been around throughout history. In its purest form, bartering is a way to re-distribute resources for the good of all parties involved.
CPA Lisa Aldrich explains some of the tactics and caveats, and the advantage of using a good “barter exchange” –
For one, you need to find someone who has what you want and is willing to trade it for what you have. And you have to agree on how much of each is fair. Direct barter trades are notoriously unequal.
With the growth of the internet, barter exchanges have blossomed worldwide. In 2010, there were estimated to be over 450,000 businesses using barter exchanges, with approximately 400 barter companies worldwide.
Casting a wider net of available goods and services, these brokers offer trade credits for goods and services you provide now. You can save up and use those credits later toward something you want. It solves the problem of finding a match and values the transaction for you as a way of equalizing the trade.
You should be aware though, that barter exchanges do have taxable consequences.
Indeed the IRS is working hard to track this type of activity. Expect to receive Form 1099B for anything you trade away on a barter exchange as it is considered income.
For direct barter between two parties, you could be required to issue Form 1099MISC depending on the circumstances. If you offer your services in trade as an “employee”, the fair market value of those wages is subject to payroll tax and reportable on a W2 form.
As with any transaction, good record-keeping is important. Just as with cash, items used personally are not deductible, whereas ordinary and necessary business expenditures generally are.
So for example, if you perform tax services for your landscaper who cuts your lawn at home, that is a non-deductible personal expense. However, if he cuts the lawn at the office building you own, it’s a business cost. Don’t hesitate to consult with your tax professional to clarify reporting requirements or to get help in assessing value to a service.