Bartering for Fun and Profit

November 7, 2017

Bartering is when you trade things (objects or services) with someone else without actually exchanging money like in some post-apocalyptic movie.  You know we’re accountants, and so you’re already dreading what we’re going to say next, which is:

Yeah, it can affect your taxes.

“But how?!?” you’re probably thinking, “No money was involved!  WTH!”

Even if you’ve bartered two things that you value the same, society may value those things very differently, what we’d normally call “fair market value.”  If there’s a difference in fair market value between something that you traded to someone else and the thing that they gave you, you may have a gain or a loss.

The loss is less important, seeing as how the IRS won’t throw you in jail for underreporting your losses (usually).  If you’re the one getting the more expensive item (in fair market value terms) that means that you have to report the difference as income.  And then you have to pay taxes on that income.  And yes, the IRS can throw people in jail for lying about that sort of thing.

The easiest way to establish market value is to just look around and see what people are selling the traded items for elsewhere.  Thrift shops, websites, and those sorts of things can help you establish fair market value, but you should keep a record if it’s what you’re using to determine the value, maybe by printing the online ad or taking a picture of the price tag.

You should probably also document the trade, just in case.  Maybe write a receipt: 2 wolf pelts for 1 bone dagger, that sort of thing.  Get the person that you’re trading for to sign and date it too, so that you have a record if it ever comes to court.