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11/12/2013

Use Barter To Lower Your Taxes

Every business owner knows it is less expensive to use independent contractors than it is to hire employees. Because employees cost the business owner FICA, worker�s compensation premiums and other expenses, the cost of employees frequently soars above an average cost of 25% of the actual payroll amount. Independent contractors, on the other hand, cost only the amount of their contract fees since they are responsible for their own employee taxes.

An independent contractor who belongs to a trade exchange, and who accepts trade dollars for certain services has created evidence of being in business � much the same as if he or she has a business license or rents office space.

Because the aforementioned are things that business owners do, an independent contractor who does them has shown a strong indication of being a business owner. As opposed to someone who simply performs tasks for another, yet claims to be an independent contactor.

Trade dollars spent on improvements increase one�s �basis� (purchase price plus value of improvements) and therefore lowers the tax bill when selling. Consider the business owner who wanted to make improvements on her real estate investment, knowing she would be selling the property in the future. Because she did not intend to �roll over� the property on a tax-free exchange, she would have a capital gains tax on any amount received above her basis.

But with a creative use of the trade dollars, she used trade dollars to lower the tax liability, while at the same time making valuable improvements that increased the property�s marketability and value. Consequently, when she finally sold the property her tax bill was nearly eliminated with the increased basis.


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