A high stakes barter exchange takes place in my apartment every morning. My cat, Zart, has determined that the fair market value of one (1) hour of additional sleep in the morning is equivalent to ¼ cup of dry food. Most recently, he has stipulated that ½ can of wet food can be exchanged for two (2) hours of additional sleep. If neither of these goods appear in his bowl at 6AM, I will not receive any additional sleep.
Zart and I are participating in the ancient practice of bartering. Simply put, bartering is trading services or goods with another entity without using cash. But in practice, bartering is far from simple. In this article, we will explore common misconceptions about bartering and, in the process, raise questions about the nature of money and art. For example, who determines the fair market value of creative work? What even is money, and where does it come from? How can artists do right by each other within economically unjust systems?
These questions and more in True or False: Bartering Edition.
At least not to the Internal Revenue Service. For the IRS, “barter dollars,” the fair market value of the goods and services you received, are considered cash. If your heart is sinking, I feel you. Most people have been a part of a barter exchange at some point in their lives, and I would guess that the vast majority of these barters went unreported.
The IRS got serious about regulating bartering in the 1980s, with the Tax Reform Act of 1984 and a federal court case—United States v. Barter Systems, Inc. Here at Fractured Atlas, we do our best to avoid gossiping about federal tax law drama, but readers who enjoy reviewing dense legal documents can access the full case here.
WHY IT MATTERS: The realness of barter dollars can impact your tax return. Let’s say your dentist commissions you to create a large, LED sculpture of a tooth. In exchange, you receive some sorely needed dental work (ouch). In this exchange, the dentist’s office would report the dental work as a sale and the tooth art as a purchase using a 1099-B. If the fair market value of the dental work is $1,500 and your tooth art is valued at $2,000, the dentist is making a profit and will be taxed accordingly. In this example, your studio would report a loss of $500, which could decrease your tax liability—what you owe the IRS—for the year.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.
The allure of bartering lies in its simplicity and effortlessness. You get something you want, while giving someone something they want. The end? Not quite. Done right, bartering is a thoughtful and intentional exchange of goods and services, with clear pricing on both sides and a mutual agreement in writing or audio recording. Skip these steps and you may find your barter becoming less fulfilling.
I’m embarrassed to admit that I learned this lesson the hard way. A close friend offered to trade one of her brilliant photographs for my web design services. We were in a rush to get to work, so we never drafted an agreement. In the end, the lines between friendship and business got blurry, leading to hurt on both sides. If I could do it over again, I would have us slow down and co-develop a framework for our new relationships as business owner, client, artist, and art collector so everyone could feel respected in each of those identities.
WHY IT MATTERS: When you price your work carefully, encourage your barter partner to do the same, and draft a mutual agreement for the exchange, you are stepping into your economic power. Bartering can be a subversive alternative to traditional economic systems, but only if we do right by each other in the process.
Usually, doing anything cool requires money. Within competitive systems, the process of getting money can be isolating and demoralizing. There’s never enough money to go around, so every other artist becomes your competition. This is a scarcity mindset, and it keeps us small.
Bartering, on the other hand, is a cooperative system that redirects our attention to the skills and assets we have to offer the world. Suddenly, the size of your savings account feels less important, because you already have what you need to make a difference in your community. Instead of competing for the same limited resources, we begin to view other artists as future collaborators and investors. We get to see ourselves and our communities as the generative and abundant beings they’ve always been.
WHY IT MATTERS: Bartering enables artists to build economic solidarity by alleviating our dependence on failing systems and encouraging collaboration—even when we’re strapped for cash.
Go forth and barter
We hope you enjoyed reading True or False: Bartering Edition as much as we enjoyed researching federal tax history for you! Along the way, we learned that the art of bartering is surprisingly complex and can impact your tax return, relationships, and community. Let us know in the comments below what True or False you want to see next.