Smart Bartering

Published: 06th February 2008
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Smart Bartering

According to the U.S. Department of Commerce, barter in its various forms accounts for about 30 percent of the world's total business. In the U.S., over 250,000 businesses actively use organized barter to supplement their cash transactions. But, everyday, more and more businesses are using unorganized bartering methods. Unorganized bartering is when individuals use verbal bartering agreements (instead of written agreements) and do not report the bartering on their taxes. This type of unorganized bartering is more common among very small startup businesses who may not know or completely understand the risks involved.Businesses who use unorganized bartering are putting themselves at a higher risk of being taken fast by dishonest bartering and also risk tax penalties if caught. Suppose that you provided your product/services as verbally agreed to another individual or business and they suddenly went out of business or declared bankruptcy before the exchange was complete, this would mean that your business suffered a loss during that tax year. There would be no way to prove the loss unless there was a written agreement and the barter was correctly filed on a Form1099-B.

According to the Internal Revenue Service (IRS) bartering occurs anytime you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of goods and services exchanged must be included in the income of both parties.

Three bartering exchanges have recently migrated to the Web: Los Angeles-based Lassopower (www.lassopower.com), Seattle-based ITEX (www.itex.com) and Michigan based BPH (www.bizpartnerhunt.com). To help reduce the potential for fraud, businesses that join Lassopower.com become part of "trading circles. The size of these trading circles range from a six-pack of trading buddies to trade association and chamber of commerce communities. Lassopower even goes a step further and asks users for their credit card number to ensure that they are who they say they are. ITEX on other hand provides small businesses with a unique channel to sell their goods and services, by using what is called ITEX dollars instead of cash. ITEX dollars are earned by selling products and services, excess inventory or capacity to other ITEX members. ITEX is membership based, and members develop a since of trust in each other over time by maintaining a good track record with their ITEX membership. BizPartnerHunt.com is an open online platform where anyone can go to post a barter exchange want ad or browse other barter exchange ads. No membership fees or registration is necessary to browse ads here. This is especially useful for small businesses looking to barter lower end products/services such as in the plumber and dentist scenario mentioned earlier. BizPartnerHunt.com also has a business partner ad category where business owners can browse or post their need for a business partner or investor. This site is one of the newest sites, and was launched in February 2007.

Whichever method you choose to connect with other businesses, you must always be cautious and use common sense. Always have a written agreement in place and always claim barter exchanges on your taxes.

A sample barter agreement can be found at http://bizpartnerhunt.com/legal_agreements.htm

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