Barterer Beware of the IRS’s Posture on Barter Tax Deductions

Bartering with the IRS on Barter Tax Deductions:  Tax Deductions of Barter Exchanges Overlooked by the Internal Revenue Service?

It is the mission of Accountants CPA Hartford, LLC to clarify the official pronouncements of authoritative bodies on accounting, audit, and tax policies and regulations to other certified public accountants, financial statement users, taxpayers, and students of accounting.

The IRS has published web pages on its website on the tax treatment of barter transactions, whether conducted privately and directly between two businesses or on a barter exchange.

It is our position that the IRS has failed in its reporting requirements to disclose the legal tax treatment of barter transactions in an objective manner.  For those interested in understanding the tax treatment of barter transactions, please see our article, Tax Deductions of Barter Exchanges:  Barterer Beware of IRS’s Posture on Barter Tax Deductions, which was written by William Brighenti, Certified Public Accountant, Certified QuickBooks ProAdvisor.

About William Brighenti

William Brighenti is a Certified Public Accountant, Certified QuickBooks ProAdvisor, and Certified Business Valuation Analyst. Bill began his career in public accounting in 1979. Since then he has worked at various public accounting firms throughout Connecticut. Bill received a Master of Science in Professional Accounting degree from the University of Hartford, after attending the University of Connecticut and Central Connecticut State University for his Bachelor of Arts and Master of Arts degrees. He subsequently attended Purdue University for doctoral studies in Accounting and Quantitative Methods in Business. Bill has instructed graduate and undergraduate courses in Accounting, Auditing, and other subjects at the University of Hartford, Central Connecticut State University, Hartford State Technical College, and Purdue University. He also taught GMAT and CPA Exam Review Classes at the Stanley H. Kaplan Educational Center and at Person-Wolinsky, and is certified to teach trade-related subjects at Connecticut Vocational Technical Schools. His articles on tax and accounting have been published in several professional journals throughout the country as well as on several accounting websites. William was born and raised in New Britain, Connecticut, and served on the City's Board of Finance and Taxation as well as its City Plan Commission. In addition to the blog, Accounting and Taxes Simplified, Bill writes a blog, "The Barefoot Accountant", for the Accounting Web, a Sift Media publication.
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6 Responses to Barterer Beware of the IRS’s Posture on Barter Tax Deductions

  1. J Brecko says:

    Hi I was reading your barter page. and this is what i got out of it.

    If i have a landscape company and at the end of the year i need to pay the irs 10k.

    But I have a barter deal with a business where I park my vehicle and equipment there for free. The services we give them for free are valued at 15k. So the 15k write off i have will offset the 10k income tax i should have paid. And the IRS will now owe me 5k?

    • Hi Jerry,

      No. You failed to include in income the value of the parking services. That business is allowing you to park your vehicle and equipment at its location in exchange for landscaping services. The parking and landscaping services offset each other. You can’t just take the deduction provided in a direct barter transaction and ignore the value of the benefit received.

      The Barefoot Accountant

  2. J Brecko says:

    Ok. I understand. But our services are valued at much more than the parking. So please confirm this scenario.

    If i have a landscape company and at the end of the year i need to pay the irs 10k.

    But I have a barter deal with a business where I park my vehicle and equipment there for free. The services we give them for free are valued at 15k. And the free parking we receive is valued at $900/ yr. So the 14.1k write off i have, will offset the 10k income tax i should have paid. And the IRS will now owe me 4.1k?

    Thanks

    • Hi Jerry,

      If you are only receiving $900 of parking privileges for your landscaping services, then that’s what you are valuing your landscaping services for.

      If your landscaping services are worth more than the parking privileges, my suggestion is that you charge the business cash for your services and pay for your parking.

      Bill

      • J Brecko says:

        Ohh so its a complete wash and not even worth writing off. There is no benefit in a write off.

        • The benefit is that you do not have to pay any taxes on the fair market value of the parking privileges you received. The IRS has made it clear that if you receive bartered goods or services, that you have to record such in taxable income. The purpose of the article was to stress what the IRS has not made as equally clear: i.e., that you can deduct the value of the goods or services provided in the exchange as well.

          The Barefoot Accountant

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