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Popular Business Misconceptions Series – Popular Misconception #3

“I like bartering with clients because it saves paperwork and taxes.”

Are You Reporting Barter Transactions?

Bartering is an excellent way of doing business. However, contrary to popular belief, some barter transactions are taxable, both for income and sales tax purposes.

Legally, you must maintain adequate financial records for your business. Barter transactions made by your business must be reported to the appropriate taxation authorities and taxes paid.

However, transactions between friends not engaging in business with each other may not be taxable.

For instance:

  1. If you are an car mechanic and I am an accountant and I swap accounting services for your car repair services, the transaction in this case is most likely taxable, even if we are friends.
    However, the accounting fees should be deductible as your business expense and so should the business portion of my car expenses. Note also that sales and similar taxes may apply on this transaction.
  2. If I trade accounting services for a vacation for my family, I should really declare the value of such services as income. The firm supplying the vacation would be able to deduct that value as accounting fees. Any sales or similar taxes would have to be paid on such transaction.

Many persons don’t record such transactions. For some, it may be a matter of wanting to believe that you don’t need to be bothered with the extra paperwork or taxes.

Remember, though, that ignorance of the law is no excuse. Legally, you must keep proper records and pay all taxes due.

Source: FINNOVATION group
Summarize: DKT Business Services Pte Ltd

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