The Tax Impact of Business Bartering

Bartering is simply the exchange of services or property, and it’s a taxable event. For example, if a computer consultant trades services with an advertising agency, each must report income equal to the fair market value of the services they received, typically the amount the service provider would normally charge. The rules are similar when property is part of the exchange. For example, if a construction company accepts unsold inventory as payment, it must report income equal to the inventory’s fair market value.

Some businesses participate in barter clubs that manage these exchanges using “credit units.” Members earn credits by providing goods or services and redeem them later. Generally, bartering is taxable in the year it occurs. However, when participating in a barter club, you might owe taxes when credits are added to your account, rather than when they’re used. Barter clubs must send participants IRS Form 1099-B (Proceeds from Broker and Barter Transactions) by January 31 of the following year.

Business bartering transactions may be beneficial as long as you’re aware of the federal and state tax consequences. Contact the DBC Team if you need assistance or would like more information.