Archive for February, 2013

Bartering Opens Your Business to New Possibilities

February 4, 2013

It conserves cash and puts idle resources to work – Just be aware of the Pitfalls

Let’s assume for a moment that you are working so hard and fast you have no time to analyze anything, but, no worries, everything is running smoothly and you have a fairly steady cash flow throughout the year so you just don’t worry about anything. Hey, you even saved some cash by bartering with several customers – good idea, right? Maybe yes… Maybe no…

Many people believe that as a cash basis taxpayer you do not have to pay taxes on income  never received; that is not true in the case of bartering because you did receive value in return, which means you were “paid” for your services.

When you barter you have to report that income you would have received and then you offset it by the expenses you would have incurred.

Where the rub comes is if you happen to barter your business services (income) for personal services (not a business expense) – you end up with income but no corresponding expense. And you did not get any cash money but you have to pay taxes on that income anyways because you received value for the service.

When bartering, make sure you barter business services for business services and personal services for personal services so you don’t have to pay taxes on “income” you never received cash payment for.

For instance, I personally would not barter my accounting services for home lawn care since the lawn care would be a personal service that I could not deduct, but I would have to report the income from the service I provided. I would barter for lawn services if I had office property that was in need of lawn services – that would be a legitimate business expense.