Fair exchange is not tax-free

Written by Paper. Posted in Drive, Service

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Published on May 12, 2016 with No Comments

In times of stress when people feel their back muscles tightening, it’s time to head to that Relax-the-Back store. But what if you’re the Relax-the-Back guy and you’ve got inventory all the way to your ceiling? Looking at that load of chairs and mattresses is definitely not a relaxing activity. How do you relax your own back? One such store owner in Wisconsin eased his stress by unloading $40,000 worth of inventory in a barter network.
The word “barter” may conjure up images of failed exchanges of massage therapy, lawn mowing and babysitting services – other people’s kids being somewhat bratty. But in the digital age, bartering networks are much different, functioning more as a clearinghouse and offering points with an expansive list of goods and services to be had. If you’ve got sidewalk café umbrellas or 50’s style carhop hats, or if you’re a lawn care contractor or you perform eye surgery, folks are looking to swap with you.
But as bartering facilitating companies spring up around the country, the IRS is watching. It has even set up a Bartering Tax Center to sort it all out and this stuff isn’t easy. Depending on the nature of the goods and services you could be governed by everything from capital gains taxes, to employment tax laws. Gardening services aren’t as easily deductible as say, medical expenses.
Bartering is not the same as cash and experts recommend that a company limit its bartering to about ten percent of business. Ultimately, it’s a lot more profitable to be the company that manages the bartering exchanges rather than one that actually trades goods and services. Two years ago, International Monetary Systems, Ltd. in Wisconsin brokered $114 million in transactions and generated almost $15 million in revenue. It receives commissions from both the buyer and seller and membership fees. And it turns out you can’t pay the bartering broker or the IRS with points.

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