So you’re a little short on cash and have the opportunity to barter your services in return for some services you really need. Maybe you provide a couple hours of coaching in return for the computer guy to fix and upgrade your laptop. Or maybe you provide a couple hours of social media work in exchange for some graphic design work. No matter the specific situation, this swapping of services with another business is called bartering. And even though no money is changing hands, Uncle Sam wants to know about it!
There are some very clear tax requirements for this ancient form of commerce. Both parties must report the fair value of their services as income.
If you’re using QuickBooks, it’s easy to keep track of these bartered transactions. Simply create a new bank account called “Bartering” in your Chart of Accounts. Let’s say I’m trading two hours of QuickBooks training for two hours of computer tech support. I send my computer guy an invoice for two hours and he sends me an invoice for two hours. I record my invoice to him and his bill to me. Then I record his “payment” to me and deposit it in the “Bartering” bank account. I can then turn around and “spend” my “Bartering” balance by paying his bill out of the “Bartering” bank account. Everything is recorded nice and neat for Uncle Sam, my computer guy’s QuickBooks skills are improved from my training, and my laptop is running better — everyone wins!
What happens when your services aren’t what’s needed by your potential bartering partner? Bartering Exchanges have cropped up to help match businesses interested in bartering. For example, Itex is a fast-growing exchange in 44 locations across the U.S. and Canada. They charge a monthly fee of $30 plus 6% commission on barter transactions. You can buy almost any kind of business service, from graphic design to accounting services, from legal services to SEO to business coaching.
Sounds easy, right? Just don’t forget to take some simple steps to protect yourself:
- Continue to draw up a contract just as you would with a regular cash-paying client. A simple contract will establish terms so that both parties know exactly what’s expected.
- Don’t try to keep it under the table. Admittedly, it’s hard for the IRS to discover barter transactions. But you’re not going to be able to deduct the expense of what you “bought” if you don’t claim the value of the services you “sold!”
For more information from the IRS on bartering, you can visit their Bartering Tax Center.
Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.