Barter Income

As with cash income, there is nothing inherently wrong with barter income. Again, as with cash income, the issue is whether or not you report it. Not reporting it is wrong – hopefully that doesn’t come as a shock to my readers. Bartering however brings in some nuances, some complexities, that are not present with cash. Mainly, valuing of the bartered item. Let’s say for instance you’re in the advertising business, and one of your customers is a furniture store. You agree to handle an advertising campaign in exchange for a room full of furniture. Handling this correctly from a tax point of view means the advertising agency reflecting the value of the furniture as revenue; and the furniture store treating the furniture, at its cost, as if an advertising expense. 

As to the furniture store, there’s really no problem – the advertising campaign is a business expense, and paying for it via furniture is essentially a paperwork issue, without any tax problems. On the other hand, the advertising agency has a bit more of a complex situation. If the furniture is indeed personal furniture for let’s say the owner of the advertising agency, then that person has personal income. The correct way to handle this would be to record it on the books of the agency and then in turn treat it as an income distribution (salary or whatever) to the person benefitting personally. If, on the other hand, that room of furniture was merely to furnish the advertising agency’s offices, then, putting aside the nuances of depreciation, essentially that too is a wash – forgone actual income by the benefit of forgoing paying money for furniture.