March 15, 2006

Communication

It's the Key to Bartering Successfully

Whether it's a verbal or written agreement between two parties, bartering involves a good deal of communication such as arranging a meeting, e-mailing, speaking on the phone, and it certainly doesn't hurt to ask for references.

Remember that the whoever you deal with has the same concerns you do. If you're suspicious or doubtful, then it's most likely for a good reason. If you don't feel comfortable with a certain situation or if you feel that the other party is doing something illegitimately, it's perfectly acceptable to cancel the deal.

I would suggest however, that you inform the person that you've been negotiating with, that you're no longer interested. This saves them from waiting around for your response.

If you've already made an agreement with someone, it is not okay to change your mind just because someone else has offered you something better. A deal is a deal and you should honor it, consider it an electronic handshake.

If the other party has already followed up with his or her end of the bargain then you should return your offer in a timely manner. Procrastinating will only leave the other party questioning their trust. If something urgent has come up and you can't honor your end of the deal right away then you should inform them that you've been busy and that you have not forgotten them. It's not necessary to go into great personal detail!

March 06, 2006

Cash is King But Barter is the Next Best Thing

True or False?

This is a popular saying in the barter industry but it may not necessarily be true, there are different methods of bartering.

1. Non-reciprocal barter is when a person joins a barter exchange and purchases and sells their products/services with a form of barter credits.

Many times prices get inflated because with a barter exchange there is a membership fee involved and a percentage taken on transactions (which is paid in cash btw)Non-reciprocal barter can be less work and a great way to move excess inventory. So if you would have been left holding the stock, the above statement would be true. It's better to move your goods and recieve barter credits so that you may purchase other goods or services for your business.

2. Reciprocal barter does take more effort because you must find someone willing to exchange for the items or services you have to offer. When you reciprocal barter for business purposes, the advantage is that your profit is taken off of your expenses.

For example if you trade $1000 worth of goods or services and your profit is 30%, the real cost of the service or good received is $700. In this case cash is not king and the above statement is false. Looks like reciprocal barter is king and cash is the next best thing.

February 22, 2006

The Legalities of Bartering

I'm amazed how often this question is asked. Speaking to people I get the "good way to avoid taxes" with a nudge, nudge...wink, wink. This coming from successful business owners who I thought would have known better.

If you're business bartering, all trades are treated as cash transactions, therefore it's up to you to claim any trades on your taxes according to your government's laws.

The only thing that is not legal is failing to claim bartering on your taxes. Treat all trades as you would cash transactions. Any barter transaction is reported on Schedule C, Profit or Loss from Business Form 1040.

Examples of Bartering

If you own a business and trade $500 worth of goods in an even trade, the $500 worth of goods/services you supply counts as a sale and the $500 worth of goods/services you receive counts as an expense. That's it. There is no tax benefit. The benefit is that your expense has your profit built in and this is probably a customer you would have not done business with through normal channels. Treat it just like a cash transaction when doing your bookkeeping.

If you're from a country that has a Goods & Services Tax, that amount is collected from the other party and remitted when doing your taxes. If a person has a $500 bike and they trade it for a $500 computer, again the transaction is treated as cash. If you sold the bike in the local paper for $500, would you claim it on your taxes? No. The bike was purchased new for $800 and applicable sales taxes were paid at that time. The bike was also purchased with "after tax" dollars.

Capital Gain

Now Lucky Mary is out at a garage sale and picks up a painting for $25. She then gets it appraised and finds out it is worth $5,000. She then trades it for a car. Does she pay taxes on that trade? Yes. Treating the trade just like cash Mary has a $4,975 capital gain on which taxes are applicable. If you follow that simple rule you'll be well on your way to successful bartering.