One way that business owners increase cashflow is through trade, commonly known as barter.  By trading your products, services or expertise with other companies, you can free up cash flow and get the products, services or expertise you need.  However it’s important to understand that whether you participate in trade either through “direct trade,” i.e., trading marketing services for accounting and bookkeeping, or for “trade credit” through a trade exchange like Tradesource, Inc., trading is a taxable event.

Transactions involving trade dollars are treated as taxable events for federal, state and local tax purposes, meaning that they are treated the same as regular cash or credit sales and taxed accordingly.  When you participate in a trade organization like Tradesource, they are responsible for tracking your transactions and supplying you with a 1099-B form for tax reporting purposes at years’ end.

Many business owners don’t like trading for this reason, because they don’t want to pay taxes on “income” that wasn’t based on the exchange of tangible US dollars.  However there is one way around this according to Deirdre Morhet, MBA, President of BASC Expertise, a Business Tax, Accounting, and Consulting Practice.

“Just use your trade “dollars” for tax deductible business expenses!’

“Utilizing trade “dollars,” according to Morhet, allows business to essentially be “tax neutral.”

Morhet says, “It’s great for the bottom line when business owners use trade dollars for tax deductible expenses, such as advertising, marketing, or business overhead expenses because it frees up cash for other expenses such as loan payments, salaries and insurance.”

There are many benefits to entering into a trade exchange relationship such as freeing up cash flow while getting the products and services you need.  Furthermore, joining a formal bartering company such as Tradesource offers the benefits of networking with other members in the group.

During down economic times, or any time, many business owners have found that it makes sense to enter into the barter system.  However, whether you trade directly with another business, or indirectly through a trade organization, just make sure you keep proper accounting, and make sure that you are working with a tax professional that understands the tax implications and regulations surrounding trade.