Is Bartering Good for Small Business? Video

By: Guest More than a year ago

Thanks for your advices, i've also tried BarterQuest.com and its so easy to use. I get what i want without paying anything and i think its a good option for the future.

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By: Guest More than a year ago

Very helpful information! I recommend www.barterquest.com where you can barter goods, services and real estate. They have automatic matching engine, it saves you time and money and it's free!

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Is Bartering Good for Small Business?

Hi I’m Cliff Ennico legal editor of SPTV.com and author of the best selling book Small Business Survival Guide. So you need some supplies, some equipment or inventory for your small business and relevant pay cash for them. You are thinking seriously about bartering with somebody else. Let us say for example an attorney who was willing to give you so many hours of free legal advice in exchange for some free services from you. Barter arrangements are one of the oldest forms of commerce and they are absolutely legal in just about every state that I know of. But there are some legal and tax things that you need to think about and they all have to do with the value of the things you are bartering. There are two ways you can barter. One is called a straight barter; that is where you barter five hours of your time as a plumber for two hours of your attorney’s time or something like that. That is called a straight barter. But there are also things called barter exchanges. These are exchanges of many, many different people that are looking to barter with people that they sometimes don’t even know personally. What you do is you offer the barters so many of your services unto the exchange membership and what you get back are barter credits that you can then use to get something else from anyone of the exchanges members. There are a lot of these online, there is something called the American Barter Exchange which is I think one of the bigger ones but there’s lots of these if you type barter exchange in quotes on your favorite search engine, you will almost always get a list of the top dozen or so, that are operating in the United States right now. So what are some of the legal things you have to think about when you are bartering? Well number one, watch the value of what you are offering and be careful about what you are offering in return. There are a lot of people who when they use barter exchanges charge a higher price when somebody pays it with barter credits than they do people who pay in cash. That can get you in trouble not only under the barter exchanges rules but might actually get you into legal trouble for what is called discriminatory pricing. If you do participate in barter exchanges and you offer people the same services for cash, make sure there is some equivalence between the prices that you offer for people who pay in cash and the people who pay in barter credits. But the most important issue here is tax related. Whenever you barter something whether it is through an exchange or through a straight barter, the value of what you are giving has to approximate somewhat closely the value of what you are getting in return. If I am bartering my brand new Mercedes convertible in exchange for a stick of gum, that from you, that is going to get me into tax trouble, why? Because when I report this transaction on my taxes, the IRS does not allow me to net those two things out. What they have to do, what I have to do is I have to report the fair market value of that Mercedes convertible and I also have to report the fair market value of the stick of gum. Clearly somebody is going to pay a lot of taxes on the difference between the fair market value of those two items and it is probably going to be you, the guy who gave me the stick of gum. So be very careful when you barter that you state clearly what the fair market value of the item is and make sure it has some meaningful relationship to the things that you get in return. Because you are going to have to report both of these things in your tax return and if you don’t do it carefully, someone, either you or your barter counterparty is going to have to pay a ton of money in taxes that they didn’t expect and they are not going to like you. I know people who have been kicked off of exchanges for cutting deals privately with some of the members to do lopsided barter arrangements in the hopes of managing their tax liability. Do not fall into that trap. One last thing about barter exchanges by the way, I am a little biased when it comes to barter exchanges. Be careful about your image when you are bartering stuff online. Very often the people who are bartering their services especially professionals, lawyers, accountants, architects are doing this because they really can not think of any better way to market their services. Often the professionals who are bartering services on barter exchanges are not the best at what they do. Be very careful and make sure you check credentials before swapping anything with anyone in a barter exchange especially professional services that you are going to be relying on to build a successful small business. I am Cliff Ennico for SPTV.com.

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Hi I’m Cliff Ennico legal editor of SPTV.com and author of the best selling book Small Business Survival Guide. So you need some supplies, some equipment or inventory for your small business and relevant pay cash for them. You are thinking seriously about bartering with somebody else. Let us say for example an attorney who was willing to give you so many hours of free legal advice in exchange for some free services from you.

Barter arrangements are one of the oldest forms of commerce and they are absolutely legal in just about every state that I know of. But there are some legal and tax things that you need to think about and they all have to do with the value of the things you are bartering. There are two ways you can barter. One is called a straight barter; that is where you barter five hours of your time as a plumber for two hours of your attorney’s time or something like that. That is called a straight barter.

But there are also things called barter exchanges. These are exchanges of many, many different people that are looking to barter with people that they sometimes don’t even know personally. What you do is you offer the barters so many of your services unto the exchange membership and what you get back are barter credits that you can then use to get something else from anyone of the exchanges members.

There are a lot of these online, there is something called the American Barter Exchange which is I think one of the bigger ones but there’s lots of these if you type barter exchange in quotes on your favorite search engine, you will almost always get a list of the top dozen or so, that are operating in the United States right now.

So what are some of the legal things you have to think about when you are bartering? Well number one, watch the value of what you are offering and be careful about what you are offering in return. There are a lot of people who when they use barter exchanges charge a higher price when somebody pays it with barter credits than they do people who pay in cash. That can get you in trouble not only under the barter exchanges rules but might actually get you into legal trouble for what is called discriminatory pricing. If you do participate in barter exchanges and you offer people the same services for cash, make sure there is some equivalence between the prices that you offer for people who pay in cash and the people who pay in barter credits.

But the most important issue here is tax related. Whenever you barter something whether it is through an exchange or through a straight barter, the value of what you are giving has to approximate somewhat closely the value of what you are getting in return. If I am bartering my brand new Mercedes convertible in exchange for a stick of gum, that from you, that is going to get me into tax trouble, why? Because when I report this transaction on my taxes, the IRS does not allow me to net those two things out. What they have to do, what I have to do is I have to report the fair market value of that Mercedes convertible and I also have to report the fair market value of the stick of gum. Clearly somebody is going to pay a lot of taxes on the difference between the fair market value of those two items and it is probably going to be you, the guy who gave me the stick of gum.

So be very careful when you barter that you state clearly what the fair market value of the item is and make sure it has some meaningful relationship to the things that you get in return. Because you are going to have to report both of these things in your tax return and if you don’t do it carefully, someone, either you or your barter counterparty is going to have to pay a ton of money in taxes that they didn’t expect and they are not going to like you.

I know people who have been kicked off of exchanges for cutting deals privately with some of the members to do lopsided barter arrangements in the hopes of managing their tax liability. Do not fall into that trap. One last thing about barter exchanges by the way, I am a little biased when it comes to barter exchanges. Be careful about your image when you are bartering stuff online. Very often the people who are bartering their services especially professionals, lawyers, accountants, architects are doing this because they really can not think of any better way to market their services.

Often the professionals who are bartering services on barter exchanges are not the best at what they do. Be very careful and make sure you check credentials before swapping anything with anyone in a barter exchange especially professional services that you are going to be relying on to build a successful small business. I am Cliff Ennico for SPTV.com.

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