Back in pre-money times, businesses bartered freely, exchanging goods and services, and money was not a medium of exchange.
Those days have passed, but many business people still barter.
A modern-day barter system involves the internet and trading exchanges that manage and control bartering between businesses and individuals.
These systems are called barter exchange networks.
How Big Is the Barter Economy?
According to the International Reciprocal Trade Association (IRTA), bartering among businesses is somewhere in the twelve to fourteen billion-dollar range. The IRTA notes that it’s difficult to pinpoint this number due to many barter transactions not being recorded.
🤔 Did you know? The International Reciprocal Trade Association estimates that approximately 400,000 businesses engage in non-cash trade in the United States. 🐝 #JoinTheHive https://t.co/NGeNLflrqy pic.twitter.com/aUdl6Rp0U3— Vendvana (@vendvana) July 8, 2019
However, approximately half comes from traditional retail barter exchange in organizations such as iTradexchange.
How Do Businesses Barter?
Bartering is just a fancy way to refer to an exchange of goods and services between trading partners. Trading partners could be either businesses or individuals.
What is a Barter Exchange?
A barter exchange (such as iTradexchange) is an organization that serves as a third party to broker barter transactions between members of the organization and acts as a bank to keep track of the value of barter transactions and the value of each member’s account.
The barter exchange provides each member with a monthly accounting worksheet and a year-end worksheet for IRS year-end tax reporting of bartering transactions.
How Does a Barter Exchange Work?
Barter exchanges are typically local or regional and have websites (such as this one) that list services or products for sale.
When you buy a product or service from another exchange member, trade dollars are deducted from your account; if you sell products or services to other members, your account is credited.
Here’s a recent video with iTradexchange executive director, Dane Arnold explaining how the system works on Local Leaders: The Podcast.
A barter exchange allows you to trade with more businesses, and many swaps are not one-to-one.
For example: A local restaurant may barter with an auto repair business that trades with a sporting goods store that trades with an after-school tutor.
Confused? Feel free to reach out to us, and we’ll try to break it down further.
How do I join a Barter Exchange?
Joining a barter exchange is easy. We have a sign-up page where you simply fill out our online form, and a staff member will reply to you and walk you through the process.
Typically, a barter exchange will charge an initial membership fee, a percentage of each transaction, and a monthly maintenance fee.
Some barter exchanges also charge a monthly membership fee (typically to “stock” your account to encourage buying and selling.)
What are the Benefits of a Barter Exchange?
One of the greatest benefits of a barter exchange is your ability to barter with more than one business or individual in a round-robin system. You don’t have to keep track of who owes what to whom. The network takes care of all of that for you, leaving you free to focus on buying and selling.
How Do Taxes Work for Barter Exchanges?
Barter exchanges help keep you in the IRS’s good graces by serving two functions:
Because the barter exchange is the bookkeeper for transactions, members don’t have to keep up with each transaction’s paperwork and records.
The exchange also serves as the bank and keeps the money (trade dollars) for businesses that don’t immediately need to spend it.
For example: Suppose you own a consulting company, and someone wants to barter with you for your services.
You can bank the bartering dollars that you receive and don’t have to spend them immediately. They are safe with the network until the time that you need to use them for a purchase.
At the end of each calendar year, the barter service will provide you with a record of the fair market value of all income you received from exchanges on an IRS Form 1099-B.
However, it is up to you to keep track of expenses related to your bartering transactions if you intend to use them in your business tax return to offset the income you received from bartering.
Whether you’re a new or established business, you would do well to consider joining a barter exchange network.
The benefits, convenience, and potential for additional income from new customers far outweigh any setup and maintenance costs.
If you have any more questions or are on the fence about engaging in bartering, contact us, and let’s discuss how your business can benefit from joining a bartering network such as iTradexchange.