Can you get goods and services without paying for them? The answer to that question could be yes, if you’re willing to barter.
Bartering is nothing new; the system predates currency. But the practice is likely to grow in the face of a dismal economy, says Justin Krane of Green Apple Barter Services, a network in Pittsburgh that specializes in facilitating business-to-business trades. Krane estimates the total scope of the barter economy to be about $10 billion worldwide a year.
Alan Zimmelman of ITEX, another business-oriented bartering network in Bellevue, Wash., says it’s hard to put a precise number on it. But he agrees that bartering is a practice that is big and getting bigger every year as business and people look for creative ways to stretch their budgets.
Although there are few hard numbers on the size and scope of the bartering market, there are several rules — both formal and informal — that govern the exchanges of goods and services without cash.
So how does one start a barter? The answer is simple, according to Todd Beauchamp, a part-time music producer in Los Angeles who routinely trades session time for equipment and agreements with artists to play on other records.
“Ask. You have to ask people if they’re willing to trade, because a barter isn’t advertised,” Beauchamp says. “But when you do ask, you really do open yourself up to opportunities that weren’t always there before.”
That’s a sentiment shared by Ted Costa, a lawyer in Portland, Ore., who says he routinely inquires about his clients’ hobbies and professions in case they aren’t able to pay his rate.
Costa’s willingness to dig a little deeper, highlights another key component of bartering — you have to have something useful to trade. While the service or good may not be obvious, bartering is fundamentally about exchanging value, and that means success hinges on having something other people want, Beauchamp explains.
“Cash can be very inflexible, especially in this economy,” Beauchamp says. “But the truth is that most people have a lot of stuff they can barter. They just have to be creative and willing to take a chance that could be an opportunity.”
But once that opportunity presents itself, a whole host of different challenges can arise, and those who barter regularly say that both parties need a little bit of common sense, trust and flexibility.
Just like a cash deal, bartering requires trust. But unlike cash transactions, barters generally create ongoing relationships. And that’s where things can get tricky, according to those who barter.
While it’s important to find someone who is trustworthy, it’s hard to really know if a person is reliable before the deal is struck.
Although there is no substitute for the kind of careful consideration you’d likely give a cash transaction, people who frequently barter recommend working with members of an established community. Church groups, social clubs and other organizations all make great settings for finding a barter partner. And according to Beauchamp, it pays to start small.
“I bring up the barter early in the process, but if I’m working with someone for the first time, I don’t make a really big deal,” Beauchamp says.
By contrast, barters between two parties without a common ground or a pre-existing relationship run a far greater chance of running into trouble.
However, many people can and do barter everyday with perfect strangers as evidenced by the numerous ads on Craigslist.org‘s various local pages. And those who barter frequently say that good deals often come from unlikely places, so it pays to scan listings on sites like Craigslist to see what’s out there.
How’s this for diversity: In one Craigslist ad, the seller offered cosmetology services for dental work. In another, a person offered a Dell laptop computer for a go-cart. In yet another, the offer was an exchange of two large Macaws for two treadmills.
Barters come in all shapes and sizes. Some are simple, like agreeing to mow a neighbor’s lawn in exchange for baby-sitting. Others can be more complex. But no matter the scope, the nature of the exchange is governed by the law of contracts, and that means it’s a good idea to complete an agreement in writing, says New York-based attorney Frederic Abramson.
The written agreement need not be all that complicated, and it generally won’t be for most low-value bargains, Abramson says. What’s important is to make sure that each party’s duties and obligations are clearly set forth in the agreement.
It’s also smart to agree in advance on the value of the particular exchange. Setting the price is important because it helps both parties determine whether or not they have a good bargain. It also could help to save costs should the deal go bad, and a court is forced to resolve the dispute.
But for those who don’t take the time to put a barter agreement in writing, attorney Simon Lesser of New York says oral contracts are enforceable provided that the terms of the deal specify that the transaction is to be completed within a single year.
Still, it’s still a good idea to save any writing associated with the deal, even if it’s a simple e-mail confirming that a service was rendered, Lesser says. In the event of a dispute, that simple e-mail could help a small-claims judge determine if indeed there was a binding agreement in the first place and the extent to which any party was damaged by a breach of contract.
Bartering may seem like a casual, nontaxable event, but the truth is the IRS expects you to declare noncash exchanges on your annual tax return. Simply put, barters are taxable because the IRS views them as income, New York-based attorney Allan Pearlman says.
While Pearlman says he imagines a good deal of barters go unreported, those who barter owe taxes based on the fair market value of the goods exchanged or services rendered.
Eva Rosenberg, a tax preparer and owner of the Calif.-based TaxMama service, says bartering also may trigger sales tax liability if the barter occurs in a state that taxes services. Likewise, those who exchange goods that they also sell, will likely also have a state sales tax issue to confront, even if no money changed hands.
In all cases, declared barters will be taxed at the fair market value of the good or service exchanged, and Pearlman says people who barter should set and document that value at the time of the transaction.
To calculate value, Pearlman recommends doing a little online research on sites like Craigslist and eBay to find out what the market price is for a particular service or good. Once you have a snapshot of a few listings, you can print out the descriptions and prices as documentation of the value at the time of the exchange.
While bartering may seem like a practice reserved only for the thrifty among us, the practice can be useful to just about anyone. And for those keen to see what kind of deals await them in a cash-free marketplace, Beauchamp offers this variation on the Golden Rule: “Treat your bartering partner the way you want to be treated and you’ll do just fine.”