BARTERING – Effects on Bookkeeping and Taxes
This article was written by Jill Kuchenski, of NoCo Tax & Accounting Service to help answer some of the accounting questions that come up with barter in general and with conducting business using silver barter tokens in particular. Jill handles the accounting and recordkeeping for Northern Colorado Community Barter and offers a free initial no obligation consultation to individuals and business owners in need of accounting services.
Bartering is typically fully taxable to both parties involved when used in business transactions. This includes both services and sales of products. The amount of income reported would be to the extent of the value of the property or services exchanged. When the value of sales or services exchanged are the same, the income reported by both would be the same but in the same aspect, the merchandise or services being exchanged for are fully deductable in a business transaction. In most cases the income and the expense would be a wash, regardless of the valuation of the property or services exchanged. However, if the exchange was for personal usage, typically it cannot be deducted from taxes. For instance, if a roofer exchanged his services to reroof a personal home for house cleaning services. The income would be taxable, however, the services exchanged is a personal expense and could not be deducted.
If one service or product is valued higher than the other being exchanged, you still must report your contribution at the value you exchanged. You would still deduct the exchange at the value of the service or product. For instance, if your services valued $100 and the other company services valued $50, you would still have to claim the $100 as income, however, only could deduct $50 of the exchange. Again this is for business transactions only.
Should the barter be made through NCCB silver exchange, the income would still reflect the value of the product or service. When accepting a barter token for a sale, the token would obviously not be taken to the bank but held within the company. With this you would set up a Cash account in your accounting system and call it something like Silver on Hand. Should you barter for someone else’s services or products with silver, you would deduct the amount out of the silver on hand account as a credit and debit the expense account associated with the exchange. Each token, as one knows, has a current face value of $25. If the services exchanged are valued at something different than the silver, the difference would be put into your regular cash account. For instance, you provided services for $162. You could only be paid in silver a multiple of $25 up to $150. The remaining $12 would be paid in regular cash and the transaction would reflect in your cash account. The full $162 would be taxable.
If services are performed and you have an accounts receivable, the transaction would look like this when you are paid:
Cash $12
Silver on Hand $150
Accounts Receivable $162
Sales tax is still charged on sale items being bartered. Services typically are not taxed with sales tax. The items sold are recorded the same as if they would be exchanged for cash or credit.
When bartering services, a company should report the income on the income statement separately from regular income. This means there should be an income account specifically for barter income. When income is bartered for more than $600, the company receiving the services must issue a 1099-Misc to the company providing the services (please note that NCCB does not record or report any transactions made by member businesses). If this form is not filed at the end of the year, there can be penalties involved. If the barter transaction involved the exchange of NCCB silver, no 1099 is needed.
For more information go to the IRS website link.
Or contact me at: jill.kuchenski@noco-tax-accounting.com
Jill Kuchenski
NoCo Tax and Accounting Service
www.noco-tax-accounting.com
Image: nuttakit / FreeDigitalPhotos.net
Last Updated (Monday, April 4, 2011 — 12:28 AM)
