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New York, NY—Would you trade a diamond ring for an iPod Touch? On a recent episode of A&E TV’s hit show Barter Kings, featuring master traders Steve McHugh and Antonio Palazzola, McHugh does exactly that to get a coveted diamond ring for his wife’s anniversary present.

Ok, well, maybe not exactly that. McHugh has to make quite a few intermediate barters before he gets from MP3 to VS2. Both McHugh and Palazzola trade up in steps, starting small and eventually ending big—all, as they proudly proclaim, without ever spending a dime.

But even though money never changes hands, businesses are required to report barter income. According to this article on Fox Business, not reporting barters can be a red flag to trigger an audit, especially if there is a discrepancy between your bank deposits and your reported sales. So if you’re tempted to trade—maybe not a diamond for an iPod, but, say, a diamond for a new website, or even a diamond for an emerald—beware that it’s got to be logged in your books the same as if you paid for it with real money.

The IRS website contains both detailed information for taxpayers, says the article, but it also contains training materials for agents, which offer many clues to how agents think—and which can help you better understand what they’re looking for at tax time.

Here, excerpted from Fox Business, are five tips for staying on the IRS’s good side:

• Maintain a good set of books—on computerized software—and reconcile your bank accounts. Not having good internal controls sends an immediate red flag to an auditor, possibly signaling a need to go deeper or broader with the audit. Note, too, that agents are trained to detect unreported barter income, which should be reported on Form 1099-B.
• Record all barter transactions at fair market value.
• If you own more than one business, keep them separate from each other.
• Amounts deposited in excess of your reported sales are a red flag. While there are many plausible reasons, such as taking a loan or putting personal funds into the business, be prepared to substantiate those reasons.
• Make sure you have a proper audit trail for all non-taxable income into the business.

Read the entire article here.

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