Have you heard about Kyle McDonald, the guy who bartered his way from one red paperclip to a house in Saskatchewan? Yes, barter can do that for you.
Say you have a box of binders you don’t need. Meanwhile, your neighbor has a box of pens he doesn’t need. So you swap. Everyone’s happy.
So Mr. McDonald bartered his way from one paperclip (worth less than $0.01) to a house (we’ll estimate that it’s worth $100,000). And he didn’t have to pay a penny in taxes.
Now to the real world. Mr. McDonald is Canadian, I believe, and exempt from US tax laws. For Americans, barter transactions must be reported to the IRS. If you swap a box of binders worth $10 for a box of pens worth $10, no one has gained any income. But suppose you swap $100 worth of pens for $10 worth of binders. The person who received the pens “earned” $90. And, yes, he must report that as income.
Barter exchanges have sprung up, and if you participate in one, they function as intermediaries and issue BarterDollars. You don’t have to spend cash at Joe’s pen shop, you just spend BarterDollars. And Joe buys his binders with BarterDollars. At year-end, you each will receive a 1099-B from the intermediary showing your sales.
Bartering can be a good idea. It’s the first form of commerce for man. But the taxman expects his cut, and if you don’t give it to him, and he finds out, you won’t be very happy.
Tags: BozoTaxTips