Bartering is Alive and Well!


Do you remember way back to grade school when you didn’t like what your mother packed you for lunch and neither did your “BFF” (Best Friend forever)? So the two of you decided to trade the 3 Oreo cookies for his/her chocolate pudding. Those were the days of innocence and adventure. Nothing could stop the exchange of goods. Neither one of you like the food choice so it was inevitable to do “the trade”!
Well, today, the same principle applies. Trading and Bartering is still alive and well in today’s society. We all have wants and needs. Some of us have those, but can’t justify the cost, but in order to survive in today’s economy or our businesses, we find a suitable partner “Do the trade” For example, I have a marketing service that I can easily use my time to provide, while the other person is helping me to build a website. Easy enough and understandably so. I need the website, primarily because I don’t have the time to learn how to build one and they are more knowledgeable about it , and he needs marketing assistance. Bingo, deal done, no money exchanged. It makes sense.
The most notable example of a “trade” was when a person traded a red paper clip all the way up to a house! Can you imagine the possibilities if done right? Amazing!
There are some rules that apply and must be adhered to in order for “the trade” to be a success. There are always advantages and disadvantages to every trade. We really do, in this instance, compare “Apples to Oranges.”
1) The “Tit for Tat” rule: The value of each must be equal. Or it sours the deal.
It doesn’t make any sense if the want or need is not the same. If the only thing you have to offer in the deal is something the other doesn’t need or want, then obviously the trade won’t happen. But, then there is always the “Triangular Exchange” Where a third party enters into the arrangement and you eventually get what is needed.
2) The “Tit for Tat” rule and Time and effort plays a part:
Do we really need to measure the amount of time it takes to accomplish the trade? Yes. The time and effort it takes one party, might not be equal to the other service or product in the exchange. That is where both parties have to agree on the scope of work and effort.
3) Another disadvantage: Tax consequences. If you are essentially on the “up and up” on your values, and a invoice is part of the exchange to justify the exchange, one is obligated to show it on the “books” of the business. That is when your CPA starts to question and the value of the service or product is recorded as income on the “books.” So because I am not a CPA I cannot give any more advice on the matter. Consult your accountant for the validity of the exchange and how it is reported. Yes, the IRS has set rules in place to account for the exchange.
4) Tax Credits: The best advantage of Bartering is even though the trade was not equal in value and you are part of an actual Bartering program, you can donate the bartering credits to a charity and write it off on your taxes. Some businesses can even further the bartering process to defer or avoid paying taxes by way of the 1031 exchange, primarily used for real estate. Consult a CPA or an accountant for further explanation.
Since the ancient times, bartering has been a way of life for many, especially to combat poverty and inflation. If done right and “apples to oranges” are essentially given equal consideration, the “trade” can be done effectively and all parties are happy. You have accomplished your goal. Congratulations!
Here are some resources and links to conduct bartering practices:
1) International Trade Association
2) IRS on Bartering practices
3) Raleigh Bartering group
4) Inside919 Barter group
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