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Barter Taxes
Numerous barter exchanges exist to bring together those who wish to
trade goods or services with
each other because
of the difficulty of first turning
their
goods and services into money.
Proponents
of barter advance two principal
reasons for
bartering:
- as a financing tool - rather than spending
cash to obtain needed supplies or services,
a business can trade its own excess capacity,
unbilled time, or slow-moving inventory for
it.
- as a marketing tool - barter is a way to
avoid advertising discounted prices for your
unsold goods or services, thus weakening
the ability to maintain your list prices
in the future.
In fact what is happening, is that the two
parties to a bartering agreement are simply
setting the price for their bundle of goods
or services and that of the other's bundle
of goods or services at an equal price.
Since the trade is really a sale between
the parties, the IRS requires this trade
to be reported at it's fair market value
on a Form 1099-B. For example, suppose a
painter paints a merchant's home in exchange
for a TV. If the house painting and TV really
have fair market values of $500 each, each
person would have to report $500 of income.
Moreover, since the painting was done on
the merchant's home rather than on his business,
the merchant would not be able to claim his
cost for the TV as a business expense.
Before considering barter, consult your tax
advisor. Attempting to use barter as a way
to under report taxable income (by under
or over valuing the goods or services traded)
can land you in trouble with the IRS. |
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