Imagine coming to work at your business on a Monday morning and finding that the plumbing has been leaking over the weekend. While insurance will cover the water damage, it will not pay for the new plumbing work. Fortunately, one of your clients is a plumber. So, you call A&P Plumbing and tell them your problem. The two of you agree that the work will cost an amount equivalent to six months' of your work. A&P does his work for you, you do your work for A&P, and no money changes hands.
Is there a tax liability associated with this barter transaction? YES!
State and City - Both you and A&P have a tax liability to report on State and applicable City tax returns. A&P will report a retail sale of plumbing services under both the retail sales tax and retailing (business and occupation) B&O tax lines. The amount they will report is the value of six months of your services. You will report the value of the plumbing services under the service and other activities B&O tax classification (and/or retail sales tax if applicable for your business type) for the services you will provide A&P. The transaction is subject to tax because the value proceeding or accruing to a business includes money, credits, or rights expressed in terms of money - (RCW 82.04.090)
IRS - You and A&P must also include in gross income in the year of receipt the fair market value of goods or services received from bartering.
Persons who don't contract with a barter exchange or who don't barter through a barter exchange but who trade services may be required to file Form 1099-MISC to report Miscellaneous Income for those for whom they perform bartered services.
Barter Exchanges - A barter exchange is an organization that serves as a third party to coordinate barter transactions between members of the organization, and as a bank to keep track of the value of barter transactions and the value of each member's account. Locally, BizX is an example of such a barter exchange.
One big advantage to a barter exchange is your ability to barter with several other businesses or individuals in a kind of round-robin system and you don't have to worry about keeping track of who owes what to whom.
Barter exchanges serve both tax reporting and bookkeeping functions:
Barter exchanges are required to file Form 1099-B. If you exchange property or services through a barter exchange, you (and those with whom you barter) should receive a Form 1099-B. Ultimately, the declaration and reporting of all applicable local, municipal, state/provincial and federal taxes, including but not limited to appropriate sales and excise taxes, resulting from your exchange transactions rests solely with you.
Accounting for barter activities - If you use a barter exchange such as BizX, the account is set up in your bookkeeping system as a bank - much like you would for your PayPal, Stripe, and Square accounts. This simplifies both revenue and expense recognition, through the use of invoices for services you provide, and bills for those services you use (and Exchange fees).
If you need an assessment or a consultation to ensure your business is compliant with your bartering agreements, feel free to contact us.
Is there a tax liability associated with this barter transaction? YES!
State and City - Both you and A&P have a tax liability to report on State and applicable City tax returns. A&P will report a retail sale of plumbing services under both the retail sales tax and retailing (business and occupation) B&O tax lines. The amount they will report is the value of six months of your services. You will report the value of the plumbing services under the service and other activities B&O tax classification (and/or retail sales tax if applicable for your business type) for the services you will provide A&P. The transaction is subject to tax because the value proceeding or accruing to a business includes money, credits, or rights expressed in terms of money - (RCW 82.04.090)
IRS - You and A&P must also include in gross income in the year of receipt the fair market value of goods or services received from bartering.
Persons who don't contract with a barter exchange or who don't barter through a barter exchange but who trade services may be required to file Form 1099-MISC to report Miscellaneous Income for those for whom they perform bartered services.
Barter Exchanges - A barter exchange is an organization that serves as a third party to coordinate barter transactions between members of the organization, and as a bank to keep track of the value of barter transactions and the value of each member's account. Locally, BizX is an example of such a barter exchange.
One big advantage to a barter exchange is your ability to barter with several other businesses or individuals in a kind of round-robin system and you don't have to worry about keeping track of who owes what to whom.
Barter exchanges serve both tax reporting and bookkeeping functions:
Barter exchanges are required to file Form 1099-B. If you exchange property or services through a barter exchange, you (and those with whom you barter) should receive a Form 1099-B. Ultimately, the declaration and reporting of all applicable local, municipal, state/provincial and federal taxes, including but not limited to appropriate sales and excise taxes, resulting from your exchange transactions rests solely with you.
Accounting for barter activities - If you use a barter exchange such as BizX, the account is set up in your bookkeeping system as a bank - much like you would for your PayPal, Stripe, and Square accounts. This simplifies both revenue and expense recognition, through the use of invoices for services you provide, and bills for those services you use (and Exchange fees).
If you need an assessment or a consultation to ensure your business is compliant with your bartering agreements, feel free to contact us.
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