What do you need to know about bartering for goods and services?

With the rise of small businesses over the past several years, the availability of specialized, high-quality goods and services has flourished. On the other hand, small businesses’ margins have never been tighter and most are forced to keep their expenses to an absolute minimum.

Enter the increasing popularity of the barter: a transaction under which one goods or services provider exchanges his or her product for that of another provider. For example, a CPA may happily provide bookkeeping services for an electrician in exchange for some electrical work around the office.

This type of barter transaction can provide emerging businesses with access to the goods and services they need but would not otherwise be able to afford. However, there are several considerations you should keep in mind when bartering. The IRS requires you to pay taxes on the fair market value of any products or services you receive in a barter transaction. In our previous example, the electrician must report and pay taxes on the fair market value of the CPA’s services, and vice versa. Any business that provides goods or services worth $600 or more in a barter transaction to another business must also provide a Form 1099 to the recipient of the goods or services.

Although bartering can be an excellent way for small businesses to access goods and services that would otherwise be out of their reach, it is critical to protect yourself from any liability that may arise from these transactions. Northwest Business Law Group can help you decipher and comply with the regulations surrounding bartering so that you are free to creatively meet your business’s needs.

 

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