1. Money

Arts and Crafts Bartering

Making Sure You Receive Adequate Value

By

I recently received an email from a reader about a bartering arrangement they had been approached about. The reader wanted to get my opinion whether or not bartering was a good business practice and how bartering is treated for taxes.

Here's the bartering question:

I recently received an email from a website that wanted me to provide them with some articles about my area of craft. In return, I would be listed on the website as a subject matter expert (SME) - a deal the website figured was worth $3,000 in free advertising. What do you think about this proposal. If I accept, is this something I would have to pay taxes on?

Answer: Introduction to Bartering

My reader is describing a classic bartering situation. You do something for me for free and in return I will do something for you for free. I am not a big fan of bartering. In my years of experience, someone always comes out of the bartering transaction feeling they have gotten the short end of the stick. I am especially leery of anyone I don't know approaching me with a deal that purportedly is going to increase my exposure on the web.

Bartering Considerations

The number one rule of any business transaction is that if it sounds too good to be true - it is. $3,000 in free advertising? I doubt it.

First thing, check out the website's ranking in general. Then check out their cyberspace reputation. The last thing you want to do it get your brand associated with a link farm.

Also, consider how highly your website is ranking for your keywords. If you have good ranking in major search engines, you have to strongly consider why it's to your advantage to help another website increase their web presence through your unpaid hard work. Why the heck don't you just write on the topic and post it on your website or blog where there is more of a chance that the worth will directly benefit your arts and crafts business?

All that being said, if you do your due diligence and decide to go ahead with the project, just make sure the terms and conditions are weighed 50/50. For example, I think 1000 actual words coming from your side of the table is more than adequate for $3,000 worth of potential market exposure.

Taxing Barter Transactions

Sorry to disappoint - yup, bartering transactions are taxable. You must include the fair market value of the services you received in your income. In this instance, are you actually receiving $3,000 of free advertising? At this point - it's a guess at best.

So what income do you record? There are so many variables affecting this equation, I suggest discussing this with your tax return preparer.

Reporting bartering income is more clear cut if you are exchanging a piece of your hand crafted artwork for say a roofing job on your home or office. In that case, if the artwork would normally sell for $500 - that is your recorded income. As an aside, the amount the roofer records in their income is the normal cost of a like job - which may be more than your $500 income.

Final Word on Bartering

I am not a fan of bartering. We are all professionals. As such we deserve to be fairly compensated for our labor. Go into any bartering transaction with an open eye and objective stance.

©2014 About.com. All rights reserved.