Bartering is gaining popularity. Do you know the rules?

October 23, 2018|Rebecca Leavitt

Did you ever trade lunches with a friend in grade school? Welcome to the barter system! Back then, you didn’t even need to tell your mom, but these days the IRS needs to be aware. You must report your barter exchange of business property or services as income and expense based on fair market value.

Do you barter? Do you report it? Many businesses take advantage of the benefits of bartering, but fail to follow IRS reporting rules regarding bartering.

In fact, bartering activities have grown 15% annually in the past 10 years. It has become so mainstream that the IRS is now looking for these activities during an audit.

Bartering must be reported

Bartering is an exchange of property and/or services. A bartering transaction takes place when two companies agree to exchange goods or services with each other. For example, a media company might provide airtime in exchange for the service of the advertiser, or a resort could exchange room stays for maintenance or repair services.

All items received, whether in the form of cash, services or property, in your trade or business must be reported as income based on fair market value at the time received. Similarly, the cost of the item traded should be expensed when the trade is completed. Cash-basis businesses that are profitable should avoid having unspent trade dollars at the end of their fiscal year.

Bartering clubs and resources

Some businesses involved in bartering activities choose to join one of the many bartering clubs or exchanges. Some of the more popular ones are IMS Systems, The Barter Company, ITEX, NTA Trade and XENET.

Bartering clubs help businesses promote their property and services by introducing them to other members. Benefits of club membership include:

  • Promotion of your business to other members
  • Help with immediate cash flow by trading goods or services instead of cash
  • Easy identification of other businesses and members who might want to barter with you

These bartering clubs track the activities among members and should be reporting each member’s income on Form 1099-B or a similar statement to the IRS. Likewise, if you use any of these “trade items” in a taxable manner—such as benefits or awards for your employees—you must identify the fair market value of the property or services performed, record it as wages and add it to the employee’s Form W-2 as taxable income.

For assistance in updating your business records or for more information, please contact us. You can also reach out to or Becky Leavitt at or 920-907-2125.

If you are interested in learning more about bartering, helpful resources include:

Becky Leavitt is a manager and member of Schenck’s Hospitality & Retail team. She has more than 40 years of experience providing accounting and payroll services for a wide range of clients.

Tags: Accounting, Tax