Bartering is the trading of one product or service for another. Usually there is no swap of cash. Barter may take place on an informal direct one-on-one basis between businesses and individuals, suppliers, customers, distributors, partners, contract labor, and employees, or it can take place on a third party basis through a modern Internet barter exchange.
Once you have agreed to barter transactions with a vendor or customer, you must enter the transaction accurately in your accounting and tax records. Whether you maintain your books and records manually or use one of the many accounting and tax software packages on the market today, you need to keep and record some basic information about your barter transactions.
Clearly mark or file all barter income and expense documents as “bartering,” and retain all original source documents pertaining to your barter transactions:
- Sales receipts and invoices
- Barter exchange statements and Forms 1099-B, Proceeds From Broker and Barter Exchange Transactions
Record keeping and accounting for barter exchange transactions is basically the same as for direct barter transactions except that you are taxed on the value of the credit units added to your account even though you may not actually receive goods or services from other exchange members until a later year.
The most important barter tax accounting concept is that the IRS treats bartering as income received, whether you use accrual-basis or cash-basis accounting. The fair market value of property or services received through barter is taxable income.
Barter exchanges record all transactions and report them to the IRS on Forms 1099-B. The value of trade dollars received for your products or services must be included in gross income for the tax year in which they are credited to your account. If your business is a corporation, you will receive one aggregate Form 1099-B annually. If you are a partnership, individual or a sole proprietor, you will receive a Form 1099-B from the exchange for each barter transaction with a value of $1 or more.
Be sure to use a reasonable fair market value for the property or services received in a barter transaction to include in your income. The transaction is not a “wash” if you report the fair market value of the property received that is greater than your cost or basis in the property given up. Simply put, you should identify the transaction in your records and report the income and any related business deductions and cost of goods sold on Schedule C or Schedule C-EZ of Form 1040.
Publication 17, Your Federal Income Tax, features details on taking advantage of new tax-saving opportunities, such as the making work pay credit for most workers, American opportunity credit for parents and college students, energy credits for homeowners going green, first-time homebuyer credit, sales or excise tax deduction for new car buyers, and the expanded child tax credit and earned income tax credit for low- and moderate-income workers. This useful 308-page guide also provides more than 6,000 interactive links to help taxpayers quickly get answers to their questions.
Beginning on January 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 50 cents per mile for business miles driven,
- 16.5 cents per mile driven for medical or moving purposes, and
- 14 cents per mile driven in service of charitable organizations.