Bartering Art - How to Do It Right
Trades, Exchanges, Taxes and More
Barter and trade for goods and services represent an increasingly significant percentage of our economy, especially since the advent of organized barter and trade exchanges as well as easier access online to a broader range of individuals and companies willing to barter. Artists barter their art all the time for a variety of goods and services. Knowing barter basics can come in mighty handy whenever you find yourself in a situation where the potential exists to trade art instead of pay cash. The two types of barter most relevant to artists are called "direct barter" done between individuals or an individual and a business, and "retail trade exchange," or barter done through a barter and trade exchange or organization. Both will be discussed below.
But before we get going, some of you may be thinking, "I've never traded my art for anything. No one would be interested. Nothing here for me." Well think again. You'd be surprised how many people out there would at least consider owning art if they didn't have to pay for it. Not everyone needs the money. All you have to do is ask. What's the worst that can happen? They turn down the offer, you pay the cash and off you go until next time. Now for the facts...
"Direct barter" is a trade between two individual parties, for example, an artist trading a painting to a furniture store for a $1000 couch. Even though no cash changes hands between the artist and the store, appropriate state, local, and federal taxes must still be paid (on this as well as on any barter transaction). The government views the trade as two separate and distinct $1000 cash transactions for each party. The artist (1) "sells" a painting to the furniture store for $1000 and (2) then "buys" a $1000 couch from the store. The furniture store in turn "sells" a couch to the artist for $1000 and then "buys" a $1000 painting from the artist. Each $1000 "sale" is viewed as income by the government, meaning that appropriate state and federal income taxes apply. Each $1000 "buy" is viewed as a retail purchase, meaning that appropriate state and local sales taxes apply. In other words, the artist and the store owner each owe state and federal income taxes on $1000 worth of income, and state and local sales taxes on $1000 worth of retail purchases.
Supposing the artist belongs to a barter and trade exchange. According to Paul C. Garrett, California Regional Manager of the barter organization International Monetary Systems, most barter exchanges have between 300-400 members while larger ones can have as many as 15,000 or more members. These trade organizations in a sense serve as "repositories" for the "trade dollars" accumulated and used in transactions between members and participating businesses.
Barter and trade exchanges have a distinct advantage over direct trade. Sticking with our art-for-couch example above, supposing you need a couch and would rather trade art for it than pay cash. Finding the perfect match on your own, aka someone who has a couch you like and who likes your art enough to trade the couch for it, is not necessarily easy. In fact, it's often pretty difficult. Even if you do find someone to trade with, you still have to negotiate the terms and come to an agreement on what's worth what and how to complete the deal, decide whether any cash will be involved, etc. Working out details like these is not always easy.
As a member of an established barter organization, however, doing the trade is a lot easier and less complicated. Here, you can trade your art to anyone in the organization's network and in exchange, use the dollar amount of that "sale" to spend on any goods or services being offered by any active member in the network. In other words, you can trade your art to one member and use those "trade dollars" to acquire a couch from another member. The financial details are handled by the organization rather than by the parties involved in the trade. This month you may need a couch, next month an auto-mechanic, or a couple of months down the road, a dentist. Organizational membership gives you tremendous flexibility not only in terms of members who may be interested in your art, but also in terms of what you can get in return for your art "trade dollars".
To the Internal Revenue Service, these exchange organizations are treated similarly to payment systems like VISA or Paypal, with "trade dollars" between members being treated the same as cash dollars when calculating income and business taxes and deductions. According to Steve Goldbloom of the former Bay Area and Hawaii Barter and Exchange, the exchange oversaw all tax collecting. Members paid all applicable sales taxes in cash whenever they made transactions. As for state and federal income taxes, members received 1099 Forms at the end of each tax year stating the total amounts of their "sales" of goods or services during that year.
Trades may also be tax deductible just like cash transactions. For example, let's say a painter trades four pieces of art through a barter organization and earns $10,000 in trade dollars. The artist can spend those dollars on business goods and services like website design, advertising, printing, art supplies and so on, all of which is tax deductible. The $10,000 "sale" is still reported and is taxable as income, but because since the goods and services traded for are business-related, they are now deductible as well.
What surprised me the most in researching this article is that more artists make their art available through barter and trade exchanges than I thought. This is apparently a very viable income option for certain artists, especially those with significant online followings or whose names and art are relatively recognizable to the general public. As a member, an artist can receive just about any goods or services that she would normally pay for simply by trading art. Artists who think that they can make this type of arrangement work should search keyword combinations containing "barter", "trade", "exchange" and "organization" online. Read up on your options and then send a few emails or make a few phone calls to those organizations and exchanges you think might be right for you.
Thanks to Paul C. Garrett with 22 years of experience in barter, currently California Regional Manager of the barter organization International Monetary Systems, and to Steve Goldbloom of the former Bay Area and Hawaii Barter Exchange for their assistance with this article.
Disclaimer: Please be aware that I am not an attorney or tax accountant and that the contents of this article should not be construed as legal or tax advice. If you have any questions of a legal or tax nature, consult a qualified professional.
(L-R, sculpture by Henry Moore and Richard Artschwager)
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