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Home > Tax & Barter Exchange > How Tax Work with Barter
Barter and Tax Barter transactions can provide your company with important financial, sales and marketing benefits. Like other transactions, however, barter sales are taxable, and your company must report them to the appropriate tax authorities. This is also true of credits you receive or spend through a barter exchange; regardless of how you use barter credits, they are taxable as though they were cash. Tax departments regard one barter dollar as having the equivalent value as one dollar of the local currency. Because of this your barter transactions must be recorded in the same way that you record your cash sales and purchases. Your barter account is very similar to a bank statement. Every time you make a sale your account balance increases in barter dollars. Every time you make a purchase your account decreases.
Total Profit = $0.00 Total Income tax on Barter Transactions = $0.00 You record barter transactions very much like normal purchases and sales. Your accounting system will require a new “bank account” called “Barter” (or “Ormita” if you prefer). |
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Whenever you receive a payment for a sale in Barter you record the value into that account. Every time you use barter dollars to make a purchase you deduct barter dollars from that account and allocate it towards the appropriate expense.
It is important to remember that business expenses come directly off your bottom-line. By balancing out your sales with an equivalent amount of purchases the tax-effect should be minimal.
At the end of the year, provided that your sales and purchases are roughly the same there should be no “profit” in barter dollars and therefor no negative tax position. The same goes for GST / VAT (provided that they are at roughly the equivalent deductible rate for both sales and purchases).
If you use your barter dollars wisely for business purposes, it will lower you tax liabilities, improve your cash flow, increase your productivity and enhance your net worth.