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The Tax Impact of Business Bartering
Bartering is simply the exchange of services or property, and it’s a taxable event. For example, if a computer consultant trades services with an advertising agency, each must report income equal to the fair market value of the services they received, typically the amount the service provider would normally charge. The rules are similar when property is part of the exchange. For example, if a construction company accepts unsold inventory as payment, it must report income equal to the inventory’s fair market value.
Some businesses participate in barter clubs that manage these exchanges using “credit units.” Members earn credits by providing goods or services and redeem them later. Generally, bartering is taxable in the year it occurs. However, when participating in a barter club, you might owe taxes when credits are added to your account, rather than when they’re used. Barter clubs must send participants IRS Form 1099-B (Proceeds from Broker and Barter Transactions) by January 31 of the following year.
Business bartering transactions may be beneficial as long as you’re aware of the federal and state tax consequences. Contact the office if you need assistance or would like more information.
What Could Happen if You Don’t File a Required Tax Return?
Taxpayers who are required to file a federal tax return but don’t may be in for a costly surprise. If the IRS receives a document like a Form W-2 indicating taxable income, it may file a Substitute for Return (SFR) on your behalf.
Before doing so, the IRS typically will attempt to contact you and encourage voluntary filing. If you fail to file by the deadline, the IRS can move forward with an SFR. The resulting tax bill will likely be higher than necessary because it won’t include deductions or credits you qualify for.
If you receive a Notice of Deficiency with a proposed assessment, don’t delay. Respond within 90 days to avoid further action and additional penalties. Contact the office for help.
10 Small Business Tax Tips from the IRS
To help ensure small businesses take advantage of all potential tax breaks, the IRS Taxpayer Advocate Service (TAS) summarizes the types of tax you may owe and provides a list of 10 federal tax tips.
Among the tips are to separate your business and personal finances, which means establishing business-only bank accounts and credit cards. Another TAS tip, directed at startups in particular, is to correctly classify your business. Choosing the appropriate business structure is important because some enjoy greater tax benefits. But perhaps the most important tips are to know when to get tax assistance from a professional and to choose one who’s knowledgeable and trustworthy.
Read the tips here: https://www.taxpayeradvocate.irs.gov/news/tax-tips/small-business-tax-highlights/2025/04/
