Barter—Part 1: What Is It?

A few months ago, I received an e-mail from someone who had read my post Connecting – Part III: Trade Exchanges. He asked several questions that I thought others might find interesting. In this post, I’ll discuss what barter/trade exchanges are, then in subsequent posts, I’ll answer the questions.

Just about everyone has heard about the ancient practice of bartering. The farmer would pay the doctor with a chicken or the carpenter would repair the lawyer’s house in exchange for legal work. However, it’s not often that two businesses need each other’s goods or services in the same amount. Trade exchanges, also known as barter clubs, make bartering possible for almost everyone. The trade exchange acts both as a matchmaker and a banker—finding goods and services for members and maintaining records of the “trade dollars” or “barter units” members spend and receive. The exchange charges a transaction fee (in cash) for providing the service; most exchanges charge a one-time, annual, or monthly membership fee as well.

Often businesspeople find bartering attractive because they think they don’t have to pay taxes on trade income. Unfortunately, that is a misconception. Trade income is taxable exactly the same way cash income is. However, if you spend trade dollars for business expenses, the expenses are deductible just as if you had paid cash.

In the next installment, we’ll talk about the value of being a member of a trade exchange.

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