Frequently Asked Question's
Are there any tax advantages or disadvantages to modern trade in a barter exchange?
Trade credits should be viewed as you do your cash income. There are no inherent tax advantages or disadvantages just because you utilize modern trade. Utilizing a trade exchange is a marketing tool, not a tax tool. Generally speaking, as with cash income, purchases made with your trade credit that are business-related are deductible, and conversely, purchases made for personal use are not deductible.
What constitutes income in a trade exchange transaction?
Any time trade credits are posted to your account within the exchange, property or services are received, cash is received or scrip is issued to you as part of a trade transaction.
In what year are trade credits taxable?
Currently, the United States is the only country with defined reporting requirements for trade exchanges. Therefore, members of any U.S. trade exchange will receive a form 1099B from the exchange based on the calendar year. The 1099B will show the amount of trade credit posted to your account for that year. These amounts should be included in your annual tax filing.
What other benefits does barter provide?
Today, barter has become much more than just a way of make use of Excess Business Capacity and Underperforming Assets. Barter has evolved to where it not only solves a variety of financial problems, but also is a powerful marketing tool. In addition to obtaining full value for obsolete or surplus goods, barter can be the answer to:
• Minimizing losses from perishable goods;
• Reducing storage costs for old inventory;
• Extending geographic distribution;
• Entering new markets;
• Generating incremental sales;
• Decreasing negative cash flow and generating positive cash flow;
• Utilizing excess production capacity;
• Expanding marketing/advertising budgets;
• Tapping into liquid assets;
• Reducing corporate purchasing costs;
• Obtaining equipment and capital assets;
• Acquiring or divesting owned or leased real estate;
• Increasing business.
Why Businesses Use Trade
• To increase sales
Growth-oriented businesses are prime candidates to trade their goods and services as members in a barter exchange. Companies interested in increasing their revenue, keeping their workers engaged in productive work, and/or looking to rid themselves of idle inventory or under-performing assets often find that joining a barter exchange helps them accomplish all of these goals.
• To Conserve Cash:
In addition to generating new sales, barter also enables an organization to conserve cash. Trade credits can be used to purchase equipment, supplies, inventory, as well as a wide range of business and personal services without the use of cash. With barter, companies can buy what they need at the carrying cost of their inventory, or the incremental cost of producing additional services, thereby reducing the cash outlay for needed items.
• To Support The Local Economy:
Many business owners like the idea of supporting other businesses in their local community. By joining their local exchange, businesses support each other by buying and selling from each other using trade credits.
• To Enhance Productivity:
Barter helps companies put inventory, equipment, and employees to good use, creating new revenue that would not have been available otherwise. That new revenue c an be used to finance the purchase of new equipment, raw materials, or services to support the business. Essentially, a company’s less productive assets are exchanged for more valuable products or services through the help of a barter exchange.
• To Reduce Non-performing Assets:
Businesses with obsolete inventory frequently find that bartering the assets yields a much better value than liquidating it for pennies on the dollar. Instead, the company can sell the inventory to a barter member for trade credits close to the carrying cost or book value and then apply those credits to other business expenses, such as marketing, entertainment, travel, or raw materials purchase. Exchanging an unwanted asset for something else of value helps recover a significant amount of incremental revenue that might otherwise have been lost.
• To Reduce Seasonality:
During months when business is typically slower, due to a company’s product or service mix, companies can still strengthen their overall financial position by accepting trade credits.
• To Establish New Business Relationships:
In addition to the bottom line impact trading can have, participation in a barter exchange significantly enhances a company’s network of contacts. Businesses develop new professional relationships through the buying and selling that occurs among trade members. Those new relationships often lead to additional cash business as well.