could we go back to the barter system and avoid taxes and share your talents?

Answer 1

Yes good idea.

Answer 2

Good answer Judy.

Yes, barter proceeds are taxable income.

Let's say I am a plumber and you are a painter. Your toilet breaks. You call me to fix your pipes. When I get there, I fix your pipes but I see a great painting I'd love to have. I say "hey, I'll trade the painting for my work instead of collecting my fee" You agree and we trade. We both have made income and must pay taxes on this transaction (assuming we had gain over our basis).

Now, how much does each one of them report??

The plumber is easier most likely. He reports income the same as he would for any other job in which he gets paid for cash. If he usually charges $100 to do this job, but this time he got the painting instead, he reports $100 income.

The painter is difficult because each painting is unique. The question of valuation is an interesting one and is answered by a classic tax case known as "Philadelphia Park". In this case, the Court said that in a barter situation, if the value of the items or services given is unknown, assume it is equal to what was received. So, again assuming the plumbing repair was worth $100, that means we assume it is like the painter sold his painting for $100 cash - report $100 income.

If you think about it, it makes sense. If the plumber got paid in cash, and came back the next day and bought the painting for $100 to put in his house, there would be no question the plumber reports the income. The IRS and courts (and tax code most importantly) just says you can't do an end-around to avoid the taxes.

Answer 3

Actually, barter proceeds are taxable income, at the value of the goods or services. Valuation and enforcement might get a little tricky, though.