One of the most common questions we get asked at here is, "How do the taxes work with barter?" Some people mistakenly think that bartering is a way to avoid taxes, while others believe it puts them at a tax disadvantage. Here’s the short answer: even though no cash is exchanged in a barter transaction, equivalent value is still being exchanged. The IRS treats barter income as equal to cash.
There are no tax advantages or disadvantages to bartering. The same rules apply as if you were dealing in cash. However, unlike traditional barter, our simplified third-party record-keeping makes it as easy to record as your other transactions!
Bartering has been a method of trade for millennia, but it wasn't until the late 1970s that organized barter exchanges began to emerge, rapidly gaining popularity. As with many innovative financial technologies, this swift adoption brought about a period of regulatory uncertainty. The IRS, unsure of how to handle these new exchanges, even issued John Doe summons to numerous trade exchanges across the country. The International Reciprocal Trade Association (IRTA) played a pivotal role during this time, advocating for clarity. Their efforts led to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), which classified barter exchanges as third-party record keepers. This act required barter exchanges to comply with the same IRS 1099-B reporting requirements as banks and investment firms.
It has been over 40 years since TEFRA was passed into law, and the barter industry has continued to thrive. With Trade Network, you don't have to worry about the hassle of tracking your barter transactions. Our platform acts as your third-party record keeper, providing you with detailed monthly statements, live transaction data, and even issuing a 1099-B automatically at the end of the year. This way, you can focus on utilizing TN as a marketing tool to grow your business and save cash.
Bartering is just like any other cash transaction. While it isn't a way to avoid taxes, barter is helping local businesses save cash, increase profitability, and build strengthen our Michigan communities!