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Avoid Overstating Your Barter Income

Updated: Oct 13, 2023

Updated: Jun 6, 2023

Whenever you’re paid in something besides cash, that’s called barter income. Barter income is taxable: The fair market value of the property received needs to be reported to the IRS. Many companies needlessly overstate their barter income.

We recently helped a client with barter income save over a million dollars on their tax bill. Our client reported our appraised fair market value of preferred stock as of the date when they received it, instead of reporting the value of the preferred stock as of when it was first issued. Between these two key dates, the market had driven down the value of the underlying business. Accordingly, the original issue price of the preferred stock no longer reflected fair market value.

Performing an appraisal of securities that do not have an active market can be crucial in reducing your tax bill. If the security received in a barter transaction has an active market, there are still avenues that can be pursued to reduce taxable income.

For example, if you receive a large block of stock or tokens, you might be entitled to take a blockage discount. Blockage discounts reflect the reality that unloading a large block of shares or tokens onto the open market would likely lead to a decline in the price of the property as a result of the sudden increase in supply. The IRS has historically accepted blockage discounts in excess of 10%.

So, if you’re paid in stock or crypto and you want to optimize your taxes, contact Mercovus Valuations. We’d be happy to see if we can help.

Eric Sundheim, ASA


Mercovus Valuations


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