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Is Bartering Legal?


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Gabriel's Avatar
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04-Oct-2005, 12:47 PM #1
Is Bartering Legal?
Talking to a friend recently, he told me that bartering was not legal. That it was not legal because it was a way of avoiding taxes. Is he correct?
I always thought bartering was totally ok? Is there a difference between bartering on a business or personal level?
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04-Oct-2005, 01:02 PM #2
Most people will do it anyways..."I give the Government too much of my money anyways and if a black car pulls up with tinted windows and two guys get out dressed in black trenchcoats wearing shades and holding machine guns it will be obvious that it's the IRS and I will flee the scene yippy skippy"
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04-Oct-2005, 01:04 PM #3


Umm...how could it not be legal?

Even cash purchases are bartering...only you are bartering for cash.
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04-Oct-2005, 01:08 PM #4
Here's what the IRS has to say, Gabriel http://www.irs.gov/taxtopics/tc420.html
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04-Oct-2005, 01:12 PM #5
Thanks much all of you...

Smeegle...I will print the info out, and get the forms...thanks. Looks like my life has just gotten a little more complicated....
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04-Oct-2005, 01:19 PM #6
I just remembered something from an American history class. It was about the Whiskey Rebellion in the 18th century. It seemed that farmers who raised corn found it better to turn it into whiskey instead of storing it for sale. Whiskey became a means of barter in those days because very few people had hard cash. You could buy livestock for a certain amount of whiskey. You could pay your debts for a certain amount of whiskey and so on. The problem started when the federal government decided to tax the farmers but would not accept whiskey as a means of payment. The farmers revolted but the government won.
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04-Oct-2005, 01:42 PM #7
Bartering is perfecly legal and as the astute Kibble pointed out, paying with cash is a form of bartering--you got the cash by performing a service for or selling a good to someone else (that's how moonmist gets her free dinners from Mulder! ) and used it to obtain a good or service.

What is illegal is the failure to report income generated on this basis. As an example, if you are an electrician and you agree to do an electrical job for someone at $500 and then they agree to give you a computer with a market value of $500, then that $500 is taxable income to you! That is, you earned money in your business that would have been taxable if you had been paid cash--the fact that you received something in return doesn't change the character of the service for tax reporting purposes. Generally speaking, the income is taxable at the fair market value of the goods or services received by the taxpayer not the value of the service provided. So if the FMV of the computer was $300, the tax to the electrician would be $300. I say "generally" because the IRS is going to assume that the normal and customary charges the electrician would charge is the best indicator of the FMV of the computer knowing that most people don't work for free and that in an "arm's length" transaction, FMV is best determined by the people making the exchange by what they give each other.

The IRS doesn't like bartering, of course, because by and large most people don't report it on their tax returns and it is virtually impossible to track.
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04-Oct-2005, 01:44 PM #8
I live in the land of barter. Only we would probably call it exchanging gifts if ever questioned. I exchange a homemade quilt value 300ish for wood. In other words I give them a quilt, they give me wood.

Batch of jam in exchange for the fruit to make two batches. Ditto with pickles. I could buy my own, but many don't like to make or are single males.

I make pies year round for an old guy, 80+ in return he gave me all the hay our pet rabbits wanted, pumpkins for jack o lanterns, and sled repairs from the time my dad died to present. I could afford to buy hay, pumpkins, and do sled repairs, but he needs to feel needed.

We help uncle split and put his wood in in return we use his wood splitter. I can use an axe, or I could rent a wood splitter, but he would have a very hard time doing his wood alone. Splitter use is his way of helping us, and saying thanks

Oil change for two pies, tires rotated for a batch of fudge. Cousin good at those skills, but his wife can't bake pies, or make fudge.

Bet I sound like a true country bumpkin to most but it is our way of taking care of one another.
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04-Oct-2005, 01:48 PM #9
BTW--I might add that the example I gave of moonmist batering services to Mulder in exchange for free dinners is one of the few instances where bartering is NOT legal. Needless to say, bartering is legal only where the sale of the goods or services would otherwise be legal! So Wino can't offer his services in exchange for Pot! Not that anyone would want Wino's services anyway!
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04-Oct-2005, 01:51 PM #10
Quote:
Originally Posted by Mulder
BTW--I might add that the example I gave of moonmist batering services to Mulder in exchange for free dinners is one of the few instances where bartering is NOT legal. Needless to say, bartering is legal only where the sale of the goods or services would otherwise be legal! So Wino can't offer his services in exchange for Pot! Not that anyone would want Wino's services anyway!
ROFL! good catch
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04-Oct-2005, 01:56 PM #11
Ok Cool,
Thanks Mulder and A erised....It is getting clearer to me.
BTW A erised....half of my Barter is the way you do...
the other half is my small business to other small businesses....................................Thanks all
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04-Oct-2005, 02:03 PM #12
Quote:
Originally Posted by Gibble
ROFL! good catch
Agreed--moonmist is one hell of a catch!
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04-Oct-2005, 02:04 PM #13
Quote:
Originally Posted by Gabriel
Ok Cool,
Thanks Mulder and A erised....It is getting clearer to me.
BTW A erised....half of my Barter is the way you do...
the other half is my small business to other small businesses....................................Thanks all
What should be clear to you is how to avoid some taxes!
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04-Oct-2005, 03:03 PM #14
Quote:
Originally Posted by Mulder
What should be clear to you is how to avoid some taxes!
Someone once told me that "To avoid is legal, to evade is not".
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04-Oct-2005, 03:17 PM #15
Quote:
Originally Posted by Mulder
BTW--I might add that the example I gave of moonmist batering services to Mulder in exchange for free dinners is one of the few instances where bartering is NOT legal. Needless to say, bartering is legal only where the sale of the goods or services would otherwise be legal! So Wino can't offer his services in exchange for Pot! Not that anyone would want Wino's services anyway!
In that instance, the IRS could bust Wino for not paying taxes on the pot, even though illegal.
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