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Barter exchanges have their own unit of exchange, usually known as barter or trade dollars.
There is, however, an important distinction between the tax treatments of direct barter trades and those conducted on exchanges.
Because a bartered transaction is essentially two transactions--the provision of a product or service in exchange for another product or service--the barter exchange underscores this distinction by providing a marketplace for the two transactions to be consummated independently of each other.
As a result of this division provided by the barter exchange, when a member provides a bartered product or performs a bartered service, its fair market value is recorded by the exchange in the member's account in terms of barter or trade dollars, and taxable income is recognized, as in a normal sale.
Similarly--due again to the use of trade or barter dollars, the presence of a third-party record keeper, and the existence of a marketplace--exchange bartering recognizes the deduction of the fair market value of the products or services received when purchased, whereas direct bartering recognizes the deduction of the fair market value of the products or services purchased when provided.
Accountants can advise clients to use barter to achieve specific business goals, including
Because barter purchases represent lower out-of-pocket cash costs, trade dollars often can be earned with little increase in overhead and without advertising or marketing expense.
A barter network keeps clients informed of new products and services available for barter.
A further advantage of barter arises directly from the makeup of barter exchange networks.