Open discussion: What do you barter?

With the increased tax burden placed upon us by the current administrations both locally and nationally I can only see it increasing.

Just wait till I-Pod downloads are taxed! You will see a HUGE amount of file sharing! It already exists, but it will get huge!

People will go to great lengths to avoid taxes, the more you tax, the more you avoid.

I'm going to barter my flaccid body, Winston.

Jim H.

Some friends and I recently started a bartering website barterlistings.com. It's a free service only charging for advertisement and featured listings.

Bartering is one of those iffy areas of the law. In the Midwest, a non-taxfiler was recently prosecuted for failing to file and pay taxes on the value of the items he received in trade as a result of handyman work he performed around town.

We know from Gather that our points earned here are considered and taxed as income, such that Gather issues members a federal 1099 tax form when their account cash-out values hit $600. This is technically barter, with points/gift cards given for action on the Gather.com site.

Yet, when I search the IRS site for guidance as to how and where to claim barter-related things like freebies received as compensation for volunteer work, my search comes up empty. I'll be calling the IRS today to try to get to the bottom of this, and will post my results here.

Thank you for launching this discussion Julia.

Wow, better keep my Gather points under $600 a year.

Another example, of how taxing behavior makes people do less of that behavior. So, taxing hard work and investment, makes people work and invest less.

People barter absolutley everything on www.tradeaway.com. boats, cars, services, clothes even real estate is swapped...actually as far as real estate goes www.tradeahome.com is a new barter site that creates permanent real estate exchanges.

I have traded small items like a few books, a phone for an ipod ect... Getting taxed on these (already taxed) items is bogus.

Taxes are not cheap. 15.3% in SS and Medicare tax, plus ordinary income tax on the profit (gross - expenses). If you receive a $1,100 for your labor, and $100 is spent on expenses to complete the service, and you're in the 25% tax bracket, you are liable for $153 + $250 ($403) in income tax.

Having said this, there may be a loophole in the tax structure. You are allowed up to $12,000 each year tax-free to give money to anyone. I wonder if money can be exchanged with service or product. Any tax expert with an answer?

Interesting question Jeff. FYI, the IRS does define bartering as "the trading of one product or service for another. Usually there is no exchange of cash." No answer for you here (plus, I'm not a tax expert), but I'll keep my eye out.

Meanwhile, I thought I'd pop in with what I found so far on bartering from the IRS:

General overview of bartering income and how it's reported ("Barter may take place on an informal one-on-one basis between individuals and businesses, or it can take place on a third party basis through a modern barter exchange company.")

Tax Responsibilities of [Third-Party] Bartering Participants

The tax rules that apply to reporting bartering income on your tax returns

The above rulings also specify that anyone operating a barter exchange must:

"The barter exchange will give you a Form W-9, Request for Taxpayer Identification Number and Certification, or a similar form, for you to make this certification. The barter exchange will withhold tax only up to the amount of any cash paid to you or deposited in your account and any scrip or credit issued to you (and converted to cash)."

I spoke with the IRS on a related issue, of gifts received by an individual in exchange for volunteer work (the local non-profit movie theatre gives free movie tickets and unlimited coffee and popcorn to volunteers who man the concession stand). Here's the IRS's stance on that:

For 2008, when given "gifts and benefits from an employer" of non-cash items of nominal value then the value is not included in your income. Gifts and benefits from non-profit or other organizations count under this section, says one IRS agent. These rules are found on page 46 of Publication 17. If it's cash, a gift certificate or something you can exchange for cash, you report the value in Line 21 as Extra Income. For 2009, the laws aren't set for how to handle this. "My advice would be to call in January to find out what the new rules are before reporting it," said the agent.

I checked on your question at the same time Jeff. Using the scenario of someone volunteering their time for one year as a family baby sitter, and receiving no compensation, I then asked if the family they're babysitting for decides to give a gift of $13,000 (the new limit) to the babysitter at the end of the year, would that be a taxable event? The IRS department on complex tax questions answered my question here. "If someone volunteers a service, it's free and not a taxable event," says the IRS agent I talked to. "The gift then is an entirely separate event. You could walk up to someone on the street and give them $13,000 or you could give someone $13,000 who's volunteered to help you in the past, and the gift still doesn't count as income."

Meanwhile, I also asked regarding Pat's comment on trading used items (since used items have already been taxed at sale, in most cases -- Oregon is one state without a sales tax). You are required to do a form 1099 B if you do it through a barter exchange brokerage, but for person-to-person exchanges, without an exchange of cash or without the use of a barter service, then there's no requirement to report the value of the goods unless you received income from the goods you received in barter (like rental income from a real estate trade).

So that's what I learned....

I stand corrected on gifting amount of $13K instead of $12K. I was aware that volunteering is non-taxable event as far as labor is concerned. I was just commenting on two people (strangers) exchanging services (like dentist trading his work for car repair). This is a tax event (and I know full well that a significant number of people do not comply with tax rules on this issue).

Thanks for checking out my comment to you Jeff, and thank you Julia for the forum.

If you have things you want to swap and get things back, you may want to check out this bartering site - http://www.swaptreasures.com