Why bartering affects your tax return

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If you exchanged items or services with someone and didn’t use money, you’ve bartered! That means you have to list the difference in fair market value between what you’ve exchanged as either income or a loss on your tax return. Before you establish the value of a bartered item, take a look around at how the item is being valued elsewhere.

If you barter business products of services in return for personal products or services, you have a business sale which should be reported for your taxable income. The transaction may be hidden or hard to find, but under audit, you will be considered to have under-reported your income, so be careful.

If a barter arrangement works for you and you get your money’s worth out of it, great. But be smart and careful. Casual barter arrangements are messy bookkeeping wise and at some point one or the other party will feel like they are not getting as much in return for what they are offering, Especially if one person provides time and the other provides tangible goods. A barter society sounds awesome, but in the real business world, it can be fraught.

Think long and hard before you barter. If the arrangement works for both parties and everyone is getting FMV for what they offer, then an arm’s length transaction would be comparable and cleaner. If one party is getting the better side of the deal, then you will tire of it soon enough.

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