Sometimes, when the right opportunity presents itself, you may be able to pay for goods and services that you need or want by trading goods that you own, or providing a service that you can perform in return. An example of this is if you own a lawn maintenance company and receive legal services from an attorney and pay for those services by providing an agreed upon amount of mowing and maintenance services at the attorney's home or place of business.

In this scenario, the fair market value of the legal services provided is taxable to you as the lawn maintenance company owner. At the same time, the fair market value of the lawn and maintenance services you provide is taxable to the attorney or his firm.

This type of transaction — bartering or trading — can prove to be useful when cash-flow problems would otherwise prevent you from securing needed goods or services. And, while there is no exchange of cash or credit, the fair market value of the goods or services that were exchanged is taxable to both parties and must be claimed as other income on an individual or business income tax return.

Remember, just like payments made with money, if a business makes payments of bartered services to another business (except a corporation) of $600 or more in the course of the year, these payments are to be reported on Form 1099-MISC.

When considering record-keeping requirements, barter and trade transactions should be treated just like any other financial transaction or exchange. Original cost of goods being bartered or traded, transaction dates, fair market value at the time of the transaction, and other pertinent details should be recorded to assist in the preparation of your income tax return and, in general, held for a period of 3 years in accordance with other documents and receipts used to substantiate income and expenses.

Tax Tips Small Business

  • Do You Know How Much Your Business Is Worth?

    Tips for placing a value on your business

    There are several reasons why you should know the value of your business. if you are planning to sell your business, the general rule is that you should sell it for fair market value. In many instances the term "fair market value" is somewhat ambiguous. In the simplest sense, fair market value is what a willing buyer would pay a willing seller, with each party knowing all the pertinent facts.

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Small Business Quick Tip

  • Like Kind Exchange

    If you are disposing of property used in your business, you may want to consider a like-kind exchange to defer the taxable gain on the sale.
Wednesday, 17th July 2019
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Tax Tips Personal

  • Naming a Beneficiary to Your Retirement Plan

    Nonspouse beneficiaries have new options

    If you are the beneficiary of a decedent's qualified retirement plan, and you are not the spouse of the decedent, you now have additional options for distributions. In the past, only a spouse beneficiary was permitted to roll the account into an IRA. Now, beginning in 2007,

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Personal Quick Tip

  • Qualified Mortgage Insurance

    In 2016, premiums that are paid or accrued for "qualified mortgage insurance" in connection with home acquisition debt on your residence are deductible as home mortgage interest.