If you’re bartering and trading, each transaction is taxable to both parties Sometimes, when the right opportunity presents itself, people are able to “pay” for goods and services that they need or want by trading goods that they own or providing a service that they can perform in return.
For example, a person who owns a lawn maintenance company may receive legal services from an attorney and “pay” for those services by providing an agreed upon amount of mowing and maintenance services at the attorney’s home or place of business. In this scenario, the fair market value of the
legal services provided is taxable to the lawn maintenance company owner. At the same time, the fair market value of the lawn and maintenance services provided is taxable to the attorney or his firm.
This type of transaction — bartering or trading — can prove to be useful when cash-flow circumstances would otherwise hinder a person’s ability to secure needed goods and/or services. And while there is no exchange of cash or credit, the fair market value of the goods and/or services that were exchanged are taxable to both parties and must be claimed as income on an individual or business’s income tax return.
When considering record keeping requirements, barter and trade transactions are treated just like any other financial transaction or exchange. The original cost of goods being bartered or traded, transaction dates, fair market value at the time of the transaction, and other pertinent details will need to be recorded to assist in the preparation of your income tax return.
These records should be held for a period of three years in accordance with other documents and receipts that are used to substantiate income and expenses.