During the recession an ancient form of economy made a comeback: bartering. Bartering occurs at the household, business, and country level. According to the International Reciprocal Trade Association, based in Portsmouth, Va., more than $16 billion of goods from US companies alone were bartered in 2008. Worldwide, the figure is much higher.
The motivation behind bartering is to use up reserve inventory to gain useful goods and services without the use of cash. This has become especially useful with inflation, job loss, and a slowing economy. Read below to learn about how you can benefit from bartering whether you own a business or are looking for a babysitter.
Bartering as a Country
It is quite common for countries to barter with one another. In 2008, China signed a deal with the Democratic Republic of Congo for copper and cobalt concessions that will supply Chinese manufacturing with 6.8 million tons of copper and 620,000 tons of cobalt in exchange for a loan and infrastructure development throughout Congo. The project includes building mines, laying 4,000 kilometers of roads and railways, and building schools, hospital and clinics.
In 2009 Thailand bartered with Iran for a trade of goods. Thailand, a leading exporter of rice, will be receiving oil from Iran, a member of OPEC who has financial sanctions against it that makes it difficult for them to complete financial transactions. In the same year Pakistan failed to pay part of its oil bill to Saudi Arabia. The slate was wiped clean in exchange for food and access to fertile land.
Bartering as a Business
While bartering typically takes place informally between individuals, there are now thousands of online exchange sites that provide forums for business bartering. Business bartering takes place for many reasons, such as to conserve cash, to generate new business, and to turn excess or idle inventory into useful products and services. What company during the recession did not have excess inventory to get rid of or did not want to preserver precious cash in light of their tightening credit lines? Add in rising inflation, job losses and the slowing economy, and it’s a perfect recipe for an increase in bartering.
By using a barter exchange service, businesses can expect a fair exchange on a present or future barter through the use of barter currency. Instead of needing to complete both sides of a transaction at one time with one other person, you can accept trade credits. If you offer goods and services for barter, instead of accepting something back immediately, you can accept trade credits. Later, when you need something, you can use trade credits to purchase it. They also can find virtually anything needed because the online business bartering networks are used by approximately 450,000 businesses worldwide.
There are set up fees (for example, Barter Co., a company with 300 members in South Carolina and 2,000 in the Southeast, charges an $395 enrollment fee), and both parties pay the exchange company typically 5-6% of the value of bartered goods. Some online barter exchange sites include NuBarter.com, BarterCard and CommunityConnect Trade.
Bartering at the Household Level
Perhaps you have no extra cash to spare for a service you need, but you are a plumber. Ready to make a trade for a new bicycle you would like? Maybe you are looking to find a family who is willing to babysit your kids on date night about once a month, and in exchange you would be willing to look after their children for a night or two a month as well. How are you going to find the people who need you so that you can barter for what you need?
A good place to start is in your local community. Perhaps there is a bulletin board at the local library or grocery store where people list what they have or want and contact information (I’ve seen these at Starbucks as well). Next you can look at websites such as Craigslist that has a dedicated section for bartering. A quick glance at our local Craigslist and I see offerings of A/C repair work for an ATV, or a dell laptop for exercise equipment. Some of the offerings are open ended, such as one person who has a Kenmore Washer and is interested in learning what you have to trade.
Tax Implications for Bartering
Bartering for goods, even though no cash exchanges hands, provides an economic benefit to you and the person or company you have traded with. Therefore, there are tax implications on bartering, just like in any economic exchange. When you bank trade credits on a barter exchange service, your trade credits are treated like cash for tax purposes. Any transactions you complete, whether informally with a neighbor, or over a barter exchange site, will be taxable as well.
In general, keep track of the informal barter transactions and their market value to you throughout the year so that you can report these. If you use a barter exchange service, you will receive a 1099-B form (Proceeds from Broker and Barter Exchange Transactions form) for the value of the goods/services and credits you have received throughout the year. You can also deduct losses and expenses.
Have you bartered for goods or services in the last few years? How did you do it, and how did the transaction go?