Accurate Accounting for Barter

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I keep track of barter transactions to the penny.  OK I admit it.  I can be a little uptight and “Type A.”  Personally I blame my mother.  I remember borrowing money from my parents when I was little.  I little paper IOU was posted on the fridge and it was slowly reduced penny by penny until it was paid back in full.  Not a single cent was ever forgiven.  And I’m not complaining about that.  It just helps explain who I am.

Anyway… personally my advice is to conduct your barter transactions in a very professional way.  That means that both parties need to agree to the cash value of the trade, contracts are signed and both parties are assured to received the correct value for what they’ve traded.  It’s very rare for me to run into a disagreement about a trade, but when it does happen, I’m always happy to have a written agreement and a set value for our trade.   I also believe that good accounting helps avoid issues in the first place.  It’s harder for someone to feel like they got the short end of a stick if they are looking at a statement that shows the details of each transaction.

Another reason that good bookkeeping is important for barter is to keep the IRS happy.  Although I heartily encourage everyone to conduct tax planning and legally avoid as much tax as they can, barter is NOT a tax dodge.  Remember to report all barter income on your 1040 exactly the same way you would your cash income.

I have found that keeping good records as an active trader is challenging.  My two secret weapons in this area are:  1)  A good book-keeper who understands barter (tough to find by the way) and 2) A barter exchange that will do a lot of the book-keeping for me.

Let me know if you have any questions on this topic and keep those pencils sharp!

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