Before money existed, people exchanged goods and services through bartering. Even after money became the logical solution to the problem of finding someone who could offer what you wanted and wanted what you had to offer, bartering remained a viable alternative way to do business.
Today, as the Internet has enabled more would-be barterers to find each other, bartering is becoming more common. Online barter exchanges like Merchants Barter Exchange, BarterFest, and Barter Planet help people connect with each other and use barter credits to create a bartering circle. (For example, a crafter may make a quilt for a plumber who fixes a leak for a librarian, who catalogs a personal library for the crafter.) Both goods and services can be bartered, saving the goods from a landfill and saving money for the barterers.
Having to wash dishes to pay for a meal may be an old joke, but it does point to the possibilities bartering can open up. If you want something you don’t have the cash for, you can always offer something other than money in exchange for it. On the other hand, if you have goods or services to barter, you could also offer those same things in exchange for money to spend or save. (You could “save” a barter in the form of barter exchange credits, but you can’t earn interest or dividends on it.)
If you live in the United States, you might as well exchange money, anyway, because bartering is taxed by the IRS. According to IRS documents, “The fair market value of goods and services exchanged is fully taxable and must be included on Form 1040 in the income of both parties.” So, even if you don’t actually earn money bartering, you still have to pay the IRS as if you had and you still have to take the time to figure out the fair market value for the goods or services you provided. When bartering costs money — even tax money — its benefits quickly erode.
It seems the best use of bartering is not often called bartering; it’s called helping out a friend. If my friends need help moving or a ride to the doctor or grammar tips, I’m willing to help them out. Because they’re my friends, they’re also willing to help me. If I have things I can no longer use but that my friends need, I’m happy to pass them on. They, in turn, give me things they no longer need. I might not say, “Hey, I’ll help you move if you give me that electric pencil sharpener you no longer use,” but I know I can call if I need something. That’s part of what makes friendship what it is.
After learning that bartering was taxable, I began to wonder, Are friendships and family relationships taxable? Would I have to pay taxes if I wrote a poem for my cousin to read at her parents’ 50th wedding anniversary and she babysat my kids three weeks later? I called the IRS to ask and learned that if my cousin agreed to babysit specifically to return the favor of writing the poem, it would be considered a taxable barter, but if that intent was not expressed, it could be seen as two separate favors. So, according to the IRS, if you agree to trade babysitting nights with friends to save money, you owe taxes.
The moral of the story? If you want to do something for a friend, don’t expect anything in return. If you do, you might have to pay for it.