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• W161154217 abstract "In today's business world, barter, one of the oldest forms of trade, has been transformed into a sophisticated way of doing business. As a result, barter exchange networks, the clearinghouses for those wishing to barter, have flourished. And as more businesses barter, it becomes increasingly important for CPAs to understand how such transactions work--especially the tax ramifications--so they can advise their clients or employers. What are the mechanics of barter in today's business world? How should you handle a company's barter records at tax time? How do you tell who can benefit most from the practice? Read on. MARKETING BENEFITS Businesses are discovering that barter not only has financial advantages but it has marketing benefits as well. Barter brings in new business that could never be acquired in any other way. And as a bonus, there are no cash expenditures for this kind of marketing. According to the International Reciprocal Trade Association (IRTA), an international organization that coordinates the many barter exchange networks around the world, the dollar value of domestic business-to-business barter transactions for the past 10 years has grown at an annual rate of more than 15%. To understand how barter works, first consider a barter transaction: I perform a service for you and you pay me with your product or service. This serves each of us well if each needs what the other is selling, both products are of equal value and both represent a business expense. But because it's usually difficult to get such a match--where the two businesses need equal amounts of each other's product--the opportunities for such direct barter transactions are limited. That's where a barter exchange network comes in. It can smooth out transactions that otherwise wouldn't be possible. The network deals in units of currency called trade dollars. The goods and services of one company in the network are exchanged for trade dollars that can be used to purchase the goods and services of any other company in the network. The network functions as a recordkeeper, sending each client a monthly statement and charging a fee--usually 5% to 7%--for each side of a transaction. Each company in the network is assigned a broker, who notifies clients of new products and services and searches out new ones on request. The larger barter exchange networks have thousands of clients, making them a viable source for many business needs, such as office equipment and supplies, printing, advertising, cleaning and maintenance services, professional services and travel and entertainment (T&E). ACCOUNTING FOR BARTER The Tax Equity and Fiscal Responsibility Act of 1982 classifies barter exchange networks as brokerages, so they are required to file 1099-B forms listing the sales of client companies. Just as in the case of a stock brokerage, the barter exchange sends a copy to each client for use in tax preparation. All barter income is on the cash basis. Perhaps the most important barter accounting concept is that the IRS treats barter transactions as income received for both accrual-basis and cash-basis clients. The value of trade dollars received must be included in gross income for the tax year in which they are credited to the client's account. Since tax is due on this income in the year it accrues, companies that are profitable should avoid having unspent trade dollars at the end of the fiscal year. This is not a concern during unprofitable years. As long as barter income does not put the company into a profit situation, it will not be taxed. In the event of year-end excess barter credit, a network can arrange tax-deductible, charitable contributions using barter. Barter can be used as compensation, too. A company can give the bartered goods or services as a bonus or as part of a compensation package--without tapping cash. Many companies conduct barter bonus or sales incentive programs, using everything from restaurant certificates to resort trips. …" @default.
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• W161154217 date "1998-03-01" @default.
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• W161154217 title "The Business of Barter: What an Accountant Should Know about It" @default.
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