Bartering for your business…consider it, but know that the IRS has thoughts
Bartering is an economic exchange method where goods or services are directly traded for other goods or services without using money as a medium. The value of the goods and services is determined by the individuals in the transaction. That meant it could change based on the urgency of the need, available resources and anticipated timeline to recoup that resource. Meaning, if a farmer was trading his eggs for another farmer’s corn, but the corn farmer needed barley more than eggs, the egg farmer might not be the best trade partner. The corn farmer could offer less because the need for the transaction does not match the egg farmer or walk from the deal altogether.
Bartering has been a part of the economy going back to ancient times. Participating in the open air markets, haggling for the best deal and walking away with the items you needed was the mark of a great business owner and provider. Fast forward to 2025, and the bartering system is still active today. However, now that we have an economy based on currency, it looks a little different. More in that in a second.
How can bartering work for your new business? Well, if you are an independent personal trainer wanting to start your business, and you need assistance with the financial component. Nothing about that is uncommon. You want to help people get stronger and healthier, not analyze cost of goods sold every month. You happen to know an ace bookkeeper who would like to lose a few pounds after Thanksgiving and Christmas. Sounds like a match made in business heaven. What do you do? Here are a few easy steps.
Decide the appropriate value for your individual service. Through preliminary market research on region/location, expertise and scope of work, the personal trainer settles on $60/hour per session and the bookkeeper charges $70/per hour of service.
Determine the desired outcome for each party. The personal trainer needs bookkeeping software, a business account, a base charter of accounts and early financial reports to learn about the health of your business. The bookkeeper wants to lose 10 pounds.
Determine the length of the engagement. The bookkeeper estimates 5 hours to complete the initial bookkeeping tasks (software, biz account and chart of accounts). Then estimates 2 hours a month for 3 months to track income/expenses, regularly reconcile the bank account and provide monthly reports. That equals $770 (11 hours * $70). The personal trainer believes that the bookkeeper can lose the desired weight in about 3 months. That includes 12 weekly sessions, plus a workout schedule for the bookkeeper to follow on the days you don’t meet. That totals $720 for personal training services (12 hours * $60). The difference in $50.
Agree on the terms of the transaction – Does estimated time, outcome and price meet or exceed expectation? If yes, set the date the engagement is effective. If the initial terms are unacceptable, then negotiate until both parties are satisfied. If that can’t be accomplished, then negotiations are concluded and nothing is exchanged. Each party moves on to find a partner better suited for this transaction.
Most of these steps take place in simple conversation or email. If you want it documented in writing, that’s fine also. Keeps all parties in the know about the transaction, and it is an easy reference in the event it needs to be renegotiated or formalized into an official paid engagement.
In an early Daily Decision, I talked about how the IRS views bartering transactions. According to the IRS website, there are two categories of bartering – “barter exchange” and non-barter exchange. A barter exchange is a formed organization made up of members that have an agreement with each other to exchange goods and services. Examples of an organized barter exchange are the Barter Business Unlimited or the Barter Business Exchange, Inc. The IRS recognizes the bartering of goods and services as taxable income based on the fair market value of the goods/services exchanged. Fair market value is simply what price that good or service would fetch in a normal transaction. In our example with the personal trainer and bookkeeper, the fair market value is the hourly rate they charge multiplied by the number of hours to complete the job. There are a couple forms the IRS wants businesses to complete if they are part of the organized barter exchange – Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. If you aren’t participating in a formal Barter Exchange like those noted above, but engage in an informal exchange – like the bookkeeper and personal trainer – you might be required to complete the Form 1099-MISC. However, don’t take my sole input for it, refer to IRS publication 525 for more information on the IRS’s requirements for collecting and reporting bartering transactions.
You are trying to build a business and find ways to fill the gaps – especially for tasks you don’t do especially well – for a reasonable cost. But as you build, be aware of the impact and responsibilities that come along with each option. Have you considered bartering in the early stages of your business? Could be beneficial, but what is the consequence of paying the fee and categorizing it as a business expense when you file your taxes. Cash flow strength and the source of the cash (personal or business) will be important as you make the decision. We can help you work through those exact types of choices. Schedule a consultation today to learn more about how we can help you find financial stability while you grow your business. Also, leave a note in the comments about your thoughts on bartering. Until we meet, keep working on the change!