Barter - Explained
What is Bartering?
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What is Bartering?
Bartering takes place when two or more parties exchange goods or services instead of using money as a medium of exchange. It means if a party offers a good and service to another party, the latter also offers some good or service in return.
Is Bartering Taxed?
According to the Internal Revenue Service (IRS), profits from bartering is a type of revenue that is required to be included in the category of taxable income. Further, a commercial entity that engages in bartering is obligated to collect sales taxes from the purchaser.
As per the Generally Accepted Accounting Principles of the United States, companies should ascertain the fair market value of the products and services to be bartered. For determining the fair value, the person should consider the previous cash transactions of the same type of products or services, and then use that figure as a reportable amount. In case it is not feasible to ascertain the right value of goods, they can use the carrying value for reporting purposes.
The barter amount is considered income, and taxable in the fiscal year when the exchange of goods or services took place. The IRS classifies the mechanism of bartering in different several types followed by a distinct set of rules and regulations. Most non-financial organizational revenue gets reported on Form 1040, Schedule C - Profit or Loss From Business.
- Legal Tender
- Gresham's Law
- Medium of Exchange
- Unit of Account
- Standard of Deferred Payment
- Liquidity Preference Theory