Bartering: maximize your resources
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Bartering
Fair Trade. Trading has been the most used form of business from the beginning of time. Trading products and services that have value for other businesses’ products and services is what it’s all about. Fair trading allows you to receive resources and needs as well as release equipment and excess products or supplies for items or services that are necessary.
Bartering is still an option even in this new age. There are now bartering sites and exchanges that allow members to exchange goods and services they have for goods and services that they need. Small businesses and nonprofits quite often do not have the availability of cash or financing to acquire equipment or services. Although the financial cash flows may be limited, these owners may have an abundant supply of equipment, products, or services that can be traded for the services or equipment that they need. Bartering can be an important option for small business owners.
How do you barter?
Businesses barter goods and services between each other based on equivalent estimates of prices and goods. The optimal exchange would be an equal exchange of the present or future value of the products and services. This will require business owners to provide the current value of the products and services. It is important that you provide a barter agreement especially if it involves future receipt of services or products. The barter agreements need to detail the numbers, amounts, or limits of services and products and the time limits of the exchange of services or products.
Barter Exchange Sites
As technology progresses, the options for services increase. Bartering sites are available to help you barter your assets. Bartering sites will allow you to list goods and services, receive trade credits, and use those credits for other goods and services. Most sites or networks will require a percentage of the transaction amounts and/or membership fees. There are more barter exchanges online, but to find more information or locate bartering sites, check out the National Association of Trade Exchanges. NATEBARTER.COM.
Tax Obligation When Bartering
The IRS considers bartering to be a form of income that incurs taxes. If you use a barter exchange, you will receive a 1099 document for your transactions. Also, be aware that even if you have credits available on an exchange but have not completed that exchange, you may still need to pay taxes on the exchange. Those who make their own barter agreement exchange will more than likely need to file for a 1099-MISC and report the gross income on the fair market value of the traded services or assets. Please discuss the tax impact of the barter income with a tax professional or see the information on IRS.Gov on bartering income.
https://www.irs.gov/forms-pubs/about-publication-334
Accounting Value and Reporting
If your business is large enough to use accounting reporting, just as bartering has tax obligations, you want to ensure you account for the trade of the products, inventory, equipment, and services that you are using in the trade as well as the received items or services. You certainly want to discuss your bartering transactions with your accounting professional. Traded items, although not a cash transaction, do hold value and therefore the value of the assets traded affects the company’s assets and the company’s equity depending on the trade. Simply put, barter transactions still hold value for your company and need to be accounted for in your business activities. Also be aware that if you use bartered exchanges of company assets for personal assets or services, it will still affect your company assets. Please ensure that you know the accounting implications of any bartering of your business assets.
Bartering is a legal and age-old option of exchanging goods and services. It can be a viable option when your cash flow or capital options are limited or scarce. If you produce products or services, you still have valuable options to use, to manage or obtain products and services needed during low cash flows. Ensure you are safe, knowledgeable, and protected when you are entering into any bartering transactions.