Bartering for your breakfast: One step closer to a local economy?

[marmar]

from YES! Magazine:



How to Share a Waffle
Bartering for your breakfast: One step closer to a local economy?

by Abby Quillen
posted Jul 19, 2010


Off the Waffle in Eugene, Oregon is not your typical waffle house. You won’t find pads of butter, bottles of fake maple syrup, or sides of hash browns and eggs here.

The owners, brothers Omer and Dave Orian, are in their mid-twenties and usually sport matching red afros. They and their seven employees serve traditional Belgian Liège waffles made from yeast-leavened batter. They use pearled sugar imported from Belgium, which caramelizes through the waffles, making them crunchy on the outside and moist on the inside.

And if you’re low on cash, Omer and Dave are happy to make a trade, because they’re big fans of bartering.

“When we were in elementary school, Dave would carry with him a little suitcase full of toys in hopes of trading them for cool stuff that other kids had,” says Omer.

Dave says the brothers have traded all kinds of things for waffles, including “acupuncture, massage, plumbing, a trumpet, and art.” And Omer adds that they received yard rakes from one customer.

“We have bartered for things we never would have gotten were we to have to pay cash for them,” Dave says.
If you’re a business lawyer, Omer and Dave would like to trade you some waffles for your services.

The Orian brothers also installed a “barter wall” next to the counter to encourage exchanges between customers. The “wall” is a large corkboard with a sign next to it explaining: “It may benefit you to trade your goods and services with your neighbors as an alternative to using money, which can potentially be a little hard to find these days.” ............(more)

The complete piece is at: http://www.yesmagazine.org/happiness/how-to-share-a-waffle

[Oregone]

1. Cool way to get what you need

And you are saying a big fuck you to the current monetary system in the process

[napi21]

2. That's a good idea for a local business to do. It wouldn't work

for anything like that nutball from Nv. wanted to do (HC) but I can see it working on a much smaller basis. MY cousin is a psycholgist and he did some bartering too. From what he's said, it worked out well for all parties involved.

[marmar]

4. You mean the Chicken Lady?

nt

[napi21]

19. Yep that's her. Can't remember er name. How quickly we forget. nt

[Ms. Toad]

3. I hope the Orian brothers don't wind up learning that

no good deed ever goes unpunished.

Bartering income is taxable, in the same way that cash income. Many people don't know that (and it isn't clear from the article that the brothers do). A widely publicized newspaper article may make them (and the people posted on their barter board) a target for IRS enforcement.

[kelly1mm]

5. The trick is to keep the items/services bartered "of equal value".

In that way, taxes are avoided. Lets say I wanted to have a sink changed out and you wanted a will. Both are valued at $500. No taxes are due as there is no barter income - what was exchanged was equal. Now, if I was to pay cash for that sink getting changed out I would actually have to do 1.5 wills to net $500 after FICA, State and Federal taxes. Likewise, the plummer would have to do 1.5 sink jobs in order to net $500 cash to pay for the drafting of a will.
By bartering we have both gotten what we want and avoided having to do approximately half again more work. Granted to losers in this is the SS/Medicare fund, federal, state and local governments.

[Davis_X_Machina]

6. If you had some intermediate...

...store of value, of agreed value but token intrinsic worth, the exchange would be greatly facilitated...like metal disks for example

[kelly1mm]

8. Maybe something shiny????? An interesting question is if you accepted

payment in pre 1965 dimes and above (which are still legal tender) at 10x face (just to make the math easy) and you changed that sink for $50 of pre 65 coins and it cost you $200 for the sink and supplies that you paid with a credit card - do you have a profit on that transaction?

[Ms. Toad]

10. The IRS doesn't care about profit.

The fair market value of whatever you receive is gross income. On the plumber's Schedule C, the plumber would then be able to deduct the $200 from the fair market value of what s/he received for the services (whether that was dimes or other services represented by those dimes). If that resulted in net income, that net income would be subject to taxation in the same way that cash net income is.

(Actually there are separate rules for clubs or groups which use tokens, but the principles are the same.)

[kelly1mm]

13. But you are only taxed on your net income after expenses on Sch C.

What is the fair market value of coins in circulation - is it their face value if they are legal tender? If you receive a pre 1965 quarter in change is it worth 25 cents or is is worth something else?

[Ms. Toad]

18. Yes - but the expenses must actually be deductible on Sch C

(i.e. expenses reasonably necessary to generate the income, rather than personal ones)

If they are income to one and an expense to the other - that would be an interesting question. I don't know the answer off the top of my head, but my intuition tells me that as long as they were valued the same by both sides of the barter, the IRS probably wouldn't inquire further. If the income side valued them at face value, and the expense side valued them at the rare coin value, I expect the result might be different.

[Ms. Toad]

7. Actually - no.

From a tax perspective, it is gross income to both - whether the value is equal or not. If the value is equal, the gross income to both is equal - it doesn't cease to exist just because it is an even trade. The IRS doesn't treat the party coming out with the best of the deal as having income and the other not - in a bartering exchange both parties have income: "Barter dollars or trade dollars are identical to real dollars for tax reporting. If you conduct any direct barter - barter for another’s products or services - you will have to report the fair market value of the products or services you received on your tax return." http://www.irs.gov/taxtopics/tc420.html ;http://www.irs.gov/businesses/small/article/0,,id=188095,00.html )

[kelly1mm]

9. Right, and one would be able to deduct the value (cost) of what you bartered

to the other as an expense. Net should still be zero.

[Ms. Toad]

11. Not quite.

Only business expenses are deductible from business income - generally unrelated services are not.

The dentist and plumber is a good example

For the dentist, maintaining her office is part of running the business. If the dentist barters dental services to the plumber in exchange for plumbing services to the dental office, the expense is a legitimate business expense - and is deductible from the income whether paid in cash or barter. (In that case it would be a wash - it is still required to be reported on both party's taxes, but for the dentist it would be a wash.)

On the other hand, if the plumbing services were provided for the dentist's home, then the dentist has income (fair market value of the plumbing services) without an offsetting expense. Just like you can't take your personal plumber's bill off of your personal income, the dentist can't take the personal expense off his income (either personal or business).

The same analysis works for the dental income to the plumber.

[kelly1mm]

15. Your analysis is correct. I should have been more precise in my

example. For businesses, it can end up avoiding FICA, state and federal taxes.

[Ms. Toad]

17. If you barter business income for business expense on both sides,

yes. (And it can significantly decrease them for both parties to the exchange if they are close.)

I just get worried when this topic comes up (particularly in a publicized manner), since most people (my spouse included) assume that barter income/expenses follow different rules than cash - when the principles are virtually identical as far as the IRS is concerned.

[kelly1mm]

22. Agreed. A little knowledge can (and in tax matters usually is) a dangerous

thing. I have felt the same about other threads concerning walking away from mortgages - totally ignoring deficiency judgments in the states that allow them. There really should be a blanket "don't take legal/tax/financial advice from the internet" tag. Thanks again for filling in the details/warnings.

[Ms. Toad]

23. No problem.

I used to be an enrolled agent, and am now an attorney. Sometimes I just have to close my eyes and walk away.

[kelly1mm]

24. While I am not an EA, I am an attorney and should have known better. nt

[Ms. Toad]

25. You would be amazed at how many students

in the basic tax classes in law school I loaned my (non-legal) tax coursebooks to. Those courses were taught by the one prof you were pretty much guaranteed an A from, but the tax information was gibberish. Completely useless to getting even a basic understanding of tax concepts.

Generally, I tell anyone who asks to seek out an EA if they need complex tax advice.

[glitch]

12. K & R Yes! should do an article on taxes with barter, make it clear. nt

[OffWithTheirHeads]

14. I just put in a heating and air conditioning system for my dentist

My profit will help me pay her for her services. It's like "Please pay me so I can pay you, so you can pay them." Until she gave me this job, I had no idea where the money would come from to pay her. The economy is circular. If she doesn't pay me, either directly or indirectly, I can't pay her.

She paid me, now I can pay her.

[Bluenorthwest]

16. Ah, local Waffle make DU!

It's the big time! These are delicious waffles, by the way.

[asdjrocky]

20. So cool.

[Name removed]

26. Deleted message

Message removed by moderator. Click here to review the message board rules.

[asdjrocky]

27. Maybe it's sad for you, not sad for me.

I'd love to see money go away.

[Skittles]

21. I think it happens more often than is realized

my dentist did dental work for an unemployed web guy who spruced up the dental office website