Have you ever thought about bartering as a way to get the goods and services you need for your business? A growing number of businesses are finding ways to use the bartering system as a means to avoid using up their company’s cash.
A simple bartering arrangement involves two parties trading items of similar value. For example, let’s say your business owns a building located next to a telephone company. An internet service provider might be interested in storing its services in an unused portion of your basement. Instead of paying rent, they offer to provide you with a high-speed internet connection and website.
It’s important to note that there are income tax consequences to bartering. To be safe, view your trades as if cash changed hands, since the goods and services are valued for tax purposes at their fair market values and taxed accordingly.
Also, a bartering arrangement does not always result in a deduction immediately equal to the income you recognized. You might provide a service and recognize income immediately in exchange for some equipment you will end up depreciating over several years.
Please call us if you need more information about tracking bartering transactions in your business.