The Ins and Outs of Barter Agreements

Standardized Legal Documents The Ins and Outs of Barter Agreements

Everything You’ve Ever Wanted To Know About Barter Agreements

You may be familiar with some common forms of legal documents—such as a sales contract or a lease purchase agreement—but have you ever signed a barter agreement?

Barter agreements are a unique type of legal documents. Even though barter agreements’ origins can be traced back all the way to the pre-hard-currency era, many individuals, companies, and countries still use them.

We will explain:

  • What barter agreements are
  • Why these agreements can be advantageous when trading goods and services
  • How you can write your own contract, along with how to generate a variety of other legal documents in seconds with the help of DoNotPay

What Is a Barter Agreement?

A barter agreement is a document describing an exchange of goods or services that doesn’t involve money between two or more separate parties.

In the past, bartering was a common way for people to get something—such as a service or a certain quantity of food or other items—and give another service or another set of goods in return. For example, farmers would trade cheese in exchange for potatoes when they could not pay for the cheese in cash. This is what people did before the hard currency was invented.

Today, bartering has become popular again. Craigslist, for example, is a platform people can visit if they want to trade something for something else.

When bartering, it’s important that both parties are satisfied with the exchange. If you want to offer your services and get something in return, you have to appraise the value of those services to match the value of the item or service you are getting.

Usually, when the values of the items or services being exchanged aren’t equal, the party that’s receiving a lesser-valued service or item can ask for further compensation in money.

If you enter into a barter agreement, the party you do business with is commonly called your barter partner. 

Why Do People and Businesses Choose To Barter?

Bartering has a lot of benefits. Not only do individuals seek barter partners online, but companies—mostly small ones—and countries trade goods and services as well.

You can benefit from entering into a barter agreement when you:

  • Don’t have hard currency to pay for the goods or services you need 
  • Wish to dispose of the items you no longer need but that still have value
  • Want to spend the money that you have on other expenses

If you are considering drawing up a barter agreement as a businessperson, you’ll be happy to hear that bartering can help you:

  • Accumulate resources for your company by getting bartered items
  • Grow your business by developing a large professional network
  • Expand your reach and gain new customers and clients

While you can get almost any item or service through a barter agreement, there are certain expenses you have to cover with money, such as:

  • Utilities
  • Mortgage
  • Medical bills

Is Bartering Taxable?

If you are entering into a barter agreement solely to avoid paying taxes, you’ll be disappointed to hear that the IRS actually considers bartered items and services taxable.

You have to estimate the market value of the goods you are receiving and report it as a taxable income, particularly if you are bartering for your business. The IRS expects you to estimate the market value of the bartered items by comparing them to cash exchanges of similar value. When you can’t know how much money the items you get through a barter deal would cost, you should rely on their carrying value.

How To Barter Successfully—A Short Step-by-Step Guide

As long as you are on good terms with the other party, there’s no particular science to successful bartering. You should:

  1. Appraise the value of the goods or services you want to offer—without forgetting to include additional costs, such as shipping or material you need to render the service
  2. Find a barter partner—starting by browsing the internet, but you can also spread the word among your friends or your company’s existing partners
  3. Agree on the terms of the exchange with your partner—remembering that a successful exchange needs to satisfy the needs of both you and your partner and represent your interests equally
  4. Draw up a barter agreement based on the agreed terms—sign and get the agreement notarized when you are done writing it if you want it to carry more legal weight

How To Write Your Barter Agreement

Barter agreements aren’t difficult to draw up. Writing one is better than relying on contract templates that you need to revise and edit a number of times until you include all the terms you need in your contract.

Here’s what to include in your barter agreement:

  • Your and your partner’s legal names
  • A detailed description of goods or services being exchanged
  • The method of exchange
  • Delivery date if you are sending goods to your partner
  • Any other terms and conditions you and your partner agreed on
  • Legal repercussions you or your partner will bear if either party doesn’t honor the agreement

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Agreement TypeAgreement Name
Business contracts
Real estate
Other types of documents

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