We posted a great article about barter transactions on LinkedIn.

It was long and some people may not have had time to read it. Here are the main points:

• Barters are great because they save cash. They’re also called “trades”. It’s exchanging one good or service for another, yielding no income, give or take.
• Nothing should be “off the books” because this leads, sure, audit problems, but it also leads to disagreements between professionals, and we all need to save our professional relationships.
• Having an outstanding barter over a year will cause income and deduction timing to be unmatched, as income is whenever a person receives a good or service, and a deduction is whenever a person spends money.

The solution is to pay or pre-pay for each product or service at the same time.
By doing this, if the trade is a business to business arrangement, then cash is received (income) at the same time as it is spend (deductible). Everything is on the books and is recorded. Just change prices (but not below cost) to make it work.

If it’s business to personal, instead of a deduction, the payment may be a draw.

Read the full article.

Barters: Avoid Common Mistakes, Save Cash – Sundberg Tax & Consulting