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Bartering and trading? Each transaction is taxable to both parties
Bartering and trading? Each transaction is taxable to both parties
Sometimes, when the right opportunity presents itself, you may be able to pay for goods and
services that you need or want by trading goods that you own, or providing a service that you
can perform in return. An example of this is if you own a lawn maintenance company and
receive legal services from an attorney and pay for those services by providing an agreed upon
amount of mowing and maintenance services at the attorney’s home or place of business. In this
scenario, the fair market value of the legal services provided is taxable to you as the lawn
maintenance company owner. At the same time, the fair market value of the lawn and
maintenance services you provide is taxable to the attorney or his firm.
This type of transaction — bartering or trading — can prove to be useful when cash-flow
problems would otherwise prevent you from securing needed goods or services. And, while
there is no exchange of cash or credit, the fair market value of the goods or services that were
exchanged is taxable to both parties and must be claimed as other income on an individual or
business income tax return.
Remember, just like payments made with money, if a business makes payments of bartered
services to another business (except a corporation) of $600 or more in the course of the year,
these payments are to be reported on Form 1099-MISC.
When considering record-keeping requirements, barter and trade transactions should be treated
just like any other financial transaction or exchange. Original cost of goods being bartered or
traded, transaction dates, fair market value at the time of the transaction, and other pertinent
details should be recorded to assist in the preparation of your income tax return and, in general,
held for a period of 3 years in accordance with other documents and receipts used to
substantiate income and expenses.
For more details on barter and trade transactions, please visit the IRS’s Bartering Tax Center or
view the Do You Barter? video.
http://www.irs.gov/pub/irs-utl/OC-Barteringandtrading-eachtransactionistaxabletobothpartiesFINAL.pdf
Thursday, October 3, 2013
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