Definition
Bartering is a business strategy known as the simple exchange of goods or services between individuals. It can be a great way for you to keep cash flow to a minimum while receiving benefits from neighboring businesses. By giving some of your product to another business, you in return will receive their product as well.
Another huge benefit of bartering is creating partnerships and networks with other local businesses. Not only are you minimizing early costs, but newly established relationships can help refer, promote, and market your business. Continuing on, members of this type of bartering community can use their personal networks towards profits and make commissions off sales.
Bartering is an easy way to get big value from outdated inventory and stock without having to lessen their cash value.
“Quid pro quo” – a donation in which the donor receives something of commercial value in return for their donation – is seen as a form of bartering in which no cash is exchanged, but in which needed services are provided in return for services a company can provide for another’s needs. It is particularly common in startup businesses where cash flow is limited, and there is an opportunity to get needed products or services without jeopardizing needed income. In this case, quid pro quo is a smart, legal business agreement for a startup in its infancy.
Exchange Groups
There are now multiple barter exchange groups that can be found online and in communities where companies come together to work in 2 basic methods:
1. Firms find other firms to barter directly with
2.Firms sell their goods and services for “trade credits” or “’bartering dollars” to use at a later time with members of the barter exchange
IRS and Taxes
It is important to note that when dealing with a barter exchange, you will need to fill out and submit Form 1099-B to the IRS. The IRS deems trades dollars identical to real currency and required them for tax reporting. Also, when dealing with direct bartering, your tax return should state the fair market value of the product or service.
As per the IRS: The rules for reporting barter transactions may vary depending on which form of bartering takes place. Generally, you report this type of business income on Form 1040, Schedule C Profit or Loss from Business, or other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations, or Form 1120-S for Small Business Corporations.
