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

  • Starting Your Own Business?

    Here are a few quick tips to help you reduce taxes

    Open a separate business checking account. Many small business owners don't realize the complications that can arise from using their personal checking account to pay for business expenses. If business expenses are mixed in with personal expenses, the IRS may disallow them.

    Read more ...

Small Business Quick Tip

  • Personal Use of Vehicle

    If your business owns a vehicle that is available for an employee's personal and business use, the vehicle is nevertheless considered used 100 percent for business on the business tax return. The personal-use percentage is included on the employee's W-2 as additional compensation.
Wednesday, 20th June 2018
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Tax Tips Personal

  • Tax Break for Reservists Called to Active Duty

    Penalty-free withdrawals from retirement plans

    If you are a reservist or national guardsman who was ordered or called to active duty for a period in excess of 179 days, you may withdraw money from your qualified retirement plan or IRA without incurring the 10% premature distribution penalty.

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Personal Quick Tip

  • Summer Day Camp

     

    Along with the lazy, hazy days of summer come some extra expenses, including summer day camp. But, the IRS has some good news for parents: those added expenses may help you qualify for a tax credit.

    Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. The Child and Dependent Care Credit is available for expenses incurred during the summer and throughout the rest of the year.