Bartering Can Be an Effective Business Strategy

As a way to sidestep using up all the business’ cash, an increasing number of companies are beginning to use the bartering system. Bartering by definition is “the action or system of exchanging goods or services without using money”. Have you considered bartering to get services and goods for your company? There are two kinds of bartering agreement.

* A “simple bartering agreement” involves two participants trading items that are of similar value. For instance; your company owns a building with an empty basement or storage and you are located next to a phone 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.

* A “complicated bartering agreement” may take place through bartering clubs that give their members credits for items or services they contribute. Members can then use the credits to pay for goods or services offered by other club members. Searching for a bartering partner on your own may prove to be difficult task. This service is offered by bartering clubs as convenience to businesses.

Be aware of income tax consequences when bartering. You will need to view your trades as though cash changed hands. All goods and services are valued for tax purposes at their fair market values and are taxed accordingly.

In addition, a bartering arrangement does not always result in a deduction immediately equal to the income you recognized. You may provide a service and recognize that income immediately in exchange for some equipment you will end up depreciating over several years.

At Summit CPA we offer multiple resources that will help get your business on the right track. Contact our office at 866-497-9761 to schedule an appointment with our Virtual CFO.