The truth is this: joining a barter club can be a big boost for individuals and businesses who want to conserve cash and maximize their bottom line.
As soon as I found out that the IRS taxes barter transactions (and forces taxpayers to report every profitable deal we make), I figured there was no way to make bartering work for me or my small businesses.
But after researching the way barter clubs work, and seeing how hundreds of companies use bartering every single day, I decided to give the topic a second look.
The Bartering Facts
It turns out that bartering can be a win-win for anyone who gets involved in it, but you have to know the background, the tax strategies and how to find a reputable club.
Here are a few of the facts that helped me make bartering work for my family and my businesses:
The main thing to remember is that the IRS looks at bartering “as if” the transaction were done in cash. So if you trade $500 of house painting services to your friend for $500 worth of car repair services, you would treat that transaction, for tax purposes, as if you received $500 in income from your friend, and then went out and paid $500 to have your car repaired at a shop. In this hypothetical case, you must report $500 of income. Since car repair expenses aren’t usually deductible for individuals, that side of the transaction wouldn’t be reported. Bottom line: You end up with a $500 gain as “other income.” But, if that car was used for your business, you could deduct the repair expense on your Schedule C or business return (whether it’s a 1065, 1120 or 1120-S form). Lesson learned: Read Pub 525 and/or consult your tax pro before entering into a large barter transaction.
Besides Craigslist and Barter of America, U-Exchange/Barter USA (www.u-exchange.com/barterusa) is another popular club, but unlike the others it is merely a gigantic listing service based on states and goods/services categories. At U-Exchange, there are no fees, commissions or “barter dollars” because members deal directly with each other. Finally, another of the big networks is Barter Only (www.barteronly.com).
What are your barter experiences?
If you find a barter organization that works for you, please let us know about it in the comments section and on our Facebook page. Owners of bartering websites are also invited to share information about the industry and how to make the most of cashless business.
Bartering can be a smart, outside-the-box way to do business. That might be why it is becoming a standard way for small businesses and savvy individuals to exchange goods and services.