BARTERING AND TRADING ART
Having a hard time coming up with hard cash? Bartering or trading might help.
Barters and trades of goods and services have a long history within our economy. Artists often barter their work in exchange for necessities, such as dental work, labor, materials and supplies, and rent. It is important that you know how the IRS regards such transactions so you do not get yourself into trouble.
There are two kinds of bartering and trading systems: the “retail trade” exchange and the “corporate barter.” Most artists engage in retail trade, since corporate barter applies to multimillion dollar companies. Applicable federal, state and local taxes must be paid on both transaction types. An example of a retail trade exchange is trading a painting for another commodity. Assuming that the trade is for items of equal value—say, the car and painting are each valued at $2,000—then each receivable must be treated as income. This means that both the car “buyer” (artist) and the car “seller” owe federal, state and local taxes on $2,000.
If the artist barters for supplies and materials to be used for making artwork, the tax ramifications are different: artwork is taxable to the receiver as if it were a retail sale; the artist can deduct the fair market value of the goods, as with any other business expense.
There are “Barter and Trade Exchange” groups that help facilitate such transactions. You can find them online by doing a simple web search.
Artists have been taken to court to pay back taxes on bartered items that were not reported as income to the IRS. Check the laws and be sure to keep a record of all transactions. If the IRS audits you, they will look for such failures to disclose.
Here is an example from the IRS web site: An artist gives a work of art she created to the owner of an apartment building in exchange for 6 months rent-free occupancy. The artist must report the fair market value of the apartment as income on Schedule C or Schedule C-EZ (Form 1040) and the apartment building owner must report the fair market value of the artwork as rental income on Schedule E (Form 1040). Both should agree to report the exchange.
Be sure you work out any details of bartering or trading with your gallery dealer; your agreement with them might be violated should you choose to barter without giving notice.
In addition, make sure that you are bartering a fair and equal trade. If you are bartering a work that is worth $1,000 for a $500 trade, you are selling yourself short. Artists deserve respect for their work, as does any other working professional.
Stumble it!
August 9th, 2009 at 6:03 am
[...] way – it’s a genuine economic transaction, even if no money changes hands – see here for some further details.) Broadly speaking, the sky’s the limit, more or [...]