Ah, the sound of success. The barter took place, the exchange was triumphant, and your business was able to save crucial funds through a bartered-for exchange. And you suddenly find yourself recommending bartering to everyone you meet, small business owners and civilians alike.
Amid the clinking glasses and celebratory toasts…just don’t forget about Uncle Sam. Even though many barter exchanges do not involve cash, the Internal Revenue Service (IRS) still requires an accounting of the exchange.
Here are a few important tax considerations regarding bartering according to the IRS:
- Income from bartering is taxable in the year it is performed
- If you barter business assets or close your business you may have capital gains, ordinary gains and depreciation recapture (explained in chapter 3 of Publication 544) to report.
- Examples of appreciated assets often include art, antiques and collectibles. If you have barter transactions of property where the fair market value is more than your cost or other basis, you usually will have a reportable gain. These gains may be business income or capital gains.
- The IRS requires barter exchanges to issue Form 1099-B Proceeds from Broker and Barter Exchange Transactions on an annual basis to their clients or members and to the Internal Revenue Service.
Related Resources:
- Bartering Tax Center (IRS.gov)
- Tax Requirements for Barter Exchanges (IRS.gov)
- Bartering Income (IRS.gov)
- Business Income Defined (FindLaw)Bartering for Small Biz: Deciding What to Barter (FindLaw’s
- Free Enterprise)Pros and Cons of a Barter Exchange (FindLaw’s Free
- Enterprise)
- Taxation Overview (provided by Kathleen M. Newman & Associates, P.A.)
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