Sometimes, when the right opportunity presents itself, you may be able to pay for goods and services
that you need or want by trading goods that you own, or providing a service that you can perform in
return. An example of this is if you own a lawn maintenance company and receive legal services from an
attorney and pay for those services by providing an agreed upon amount of mowing and maintenance
services at the attorney’s home or place of business. In this scenario, the fair market value of the legal
services provided is taxable to you as the lawn maintenance company owner. At the same time, the fair
market value of the lawn and maintenance services you provide is taxable to the attorney or his firm.
This type of transaction - bartering or trading - can prove to be useful when cash-flow problems would
otherwise prevent you from securing needed goods or services. And while there is no exchange of cash
or credit, the fair market value of the goods or services that were exchanged is taxable to both parties
and must be claimed as other income on an individual or business income tax return.

Remember, just like with payments by money, if a business makes payments of bartered services to
another business (except a corporation) of $600 or more in the course of the year, these payments are to
be reported on Form 1099-MISC.

When considering record keeping requirements, barter and trade transactions should be treated just like
any other financial transaction or exchange. Original cost of goods being bartered or traded, transaction
dates, fair market value at the time of the transaction, and other pertinent details should be recorded to
assist in the preparation of your income tax return and held, in general, for a period of 3 years in
accordance with other documents and receipts used to substantiate income and expenses.

For more details on barter and trade transactions, please visit the IRS’ Bartering Tax Center or view the
Do You Barter? video.