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Frequently Asked Questions About Barter


barter trading faqs Q. What is barter?
Q. What are the advantages of a barter exchange?
Q. Why do businesses join a barter exchange?
Q. How does barter work within a barter exchange?
Q. What does it cost to join a barter exchange?
Q. How does a barter exchange make money?
Q. Are there any tax advantages to barter?

Q. What is barter?
A. Barter is a way of transacting business without the use of cash. You can buy what you need and pay for it with what you have.
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Q. What are the advantages of a barter exchange?
A. A barter exchange network provides businesses with a source for new clients and incremental business, expanding their market beyond their cash-paying accounts. Barter also helps to conserve cash. Instead of spending cash to purchase goods and services, businesses barter their own goods and services to pay for those things they need - leaving more cash in their business and providing an increased cash flow. A Barter System puts idle resources to work. Excess time, inventory, and capacity are converted into profits.
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Q. Why do businesses join a barter exchange?
A. One-on-one trading is done daily between businesses. The problem with one-on-one trading is that each business owner must need exactly what the other has to offer. In a barter network, everyone trades with everyone, even if they do not want to take back directly what the other person has to offer. Trade dollars are credited to a trade account in the barter exchange, which can then be spent on any item or service desired from within the network.
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Q. How does barter work within a barter exchange?
A. Businesses sign a contract to join a barter exchange - agreeing to sell their products and services in exchange for Trade Dollars, instead of cash to handle their transactions. For example, if a barter exchange member sells $1000 worth of products to another member, they receive $1000 in Trade Dollars credited to their barter exchange account. These Trade Dollars can then be used to purchase from the other trading clients within the barter network. The barter exchange is a third-party record keeper, providing monthly statements, which reflects all barter purchases, sales, fees, and current trade dollar balance.
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Q. What does it cost to join a barter exchange?
A. There is a one-time membership investment and a modest monthly administrative fee.
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Q. How does a barter exchange make money?
A. Typically, there is a 6 to 7% percent transaction fee on sales and purchases - representing a fee paid for generating incremental sales for clients of the exchange network. Trade business provided is new business from new clients over and above the member's normal cash business.
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Q. Are there any tax advantages to barter?
A. There are no tax advantages or disadvantages to barter. The Internal Revenue Service considers barter income as the same as cash income for tax purposes. Trading should be considered a marketing tool, not a tax tool. As with cash income, however, trade purchases that are business related are also tax deductible. At the end of the year, a barter exchange totals the barter sales of each member and submits this information to both the IRS and the client on 1099-B forms.
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