Bartering: How to Successfully Use Barter in Your Business - YouTube

Hi, my name is Nick Sutton. I am a C.P.A. here in Fort Wayne, Indiana. I've

been a practicing C.P.A. since 1998. I am also the co-founder of Tax Writer Solutions,

a tax resolution company.

Today, I'd like to talk to you about the issue of barter. I think first we need

to go over what is barter. Barter is the trading of one product or service for another. Usually

there are no exchanges of cash. Barter may take place in an informal one-on-one

relationship, or it can take place through a third party basis through the use of barter-exchange

company. A barter exchange is a person or an organization with members or clients that

contracted with one another or with another barter exchange to jointly trade

or barter property or services.

Unlike one-on-one bartering, members are not obligated to barter or exchange directly through

a seller, instead when a barter exchange member sells a product or a service to another [00:01:00]

member, their barter account is credited for the full fair market value of the sale. When

a barter exchange member buys, their account is debited for the fair market value of the

product or service in which they bought.

Barter exchanges have their own unit of exchange, usually known as barter or trade

dollars. Trade dollars or barter dollars are valued in US currency for the purposes of

informational return. Trade dollars also barter to take place between parties when one party

may not have a simultaneous need or desire for goods or services of the other

members. Barter exchanges act as book-keepers for keeping track of trade dollars that participants

accumulate and spend.

Earning trade or barter dollars is a taxable event, it is the same as if you

were to sell your product or service for cash. So now that we understand what barter is and

the use of barter exchanges, let's go over some strategies which can help facilitate

you replacing cash expenses. With that being the first one, the whole purpose

of bartering is to replace something that you once had to pay for with cash. Now we're

able to use barter dollars to pay for that item.

Another good strategy is to work yourself out of your deficit. So in other words, when

you're in this barter exchange, they will usually have a line of credit or give you

credit, allow you to have a deficit. In other words, you owe them products or services in

exchange for it. Well, if you have already gone out and bought your product or

service through the exchange, you know that your need is going to be met. Then it's just

a matter of working yourself out of that defict, compared to well, I've offered all these products

and services on trade, and now I have a surplus on my account, but I don't

have an ability to spend them on an item which my company needs.

Another important item is that you need to trade your excess capacity, if you do not

have excess capacity, you should not be in a barter exchange. There is no reason

for you to trade. Your entire day is full with people wanting to pay you cash for your

products or service. It is only on the excess capacity, that it would make sense for you

to barter.

Another important fact is that barter exchanges are not insured. They are

not FDIC insured, like you would find with your savings account at the bank. So in other

words, if the barter exchange would fail, whatever value you had in that

barter exchange would be gone.

Another important fact is, that barter is a little more complicated than dealing with

a straigt cash transaction. The negotiability of the trade dollars can be complicated.

It is unlike cash, where cash you just peel off and you're done. Barter it takes more

planing, more thought is involved. People are trading on their excess capacity.

For example, let's say you had a landscaping project that you want to barter

for your business, out front the landscaping needed to be done. Well, to contract with

a landscaping agency firm in their peak season, it's probably not going to be beneficial to

them. So therefore they are not going to barter. So you need to have the forethought

of trying to get this done at the end of the season or at the beginning of the season,

where that company has excess capacity.

To understand how barter would work in your business, please contact your accountant or

feel free to give us a call here at Tax Matters Solutions, and we can look at your

excess capacity, we can look at your margins to see whether or not barter makes good sense

for you and your company.