What is 'Barter'
Barter is the act of trading goods or services between two or more parties without the use of money. Bartering can benefit individuals, companies and countries that see a mutual benefit in exchanging goods and services rather than cash. It also enables those who are lacking hard currency to obtain goods and services.
BREAKING DOWN 'Barter'An example of a barter arrangement would be when an individual builds a fence for a cattle farmer in exchange for food raised by the farmer. Instead of the farmer paying the fence builder $1,000 in cash for labor and materials, the farmer could give the builder a similar value in beef or corn in exchange for the fence. Virtually any good or service can be bartered if the parties involved agree to the terms of the trade. For tax purposes, barter arrangements are the same as cash payments. The Internal Revenue Service (IRS) considers the value of barter arrangements taxable income.
Benefits of Barter
Bartering allows individuals to trade items that they already have but are not using for items that they need while also keeping their cash on hand for expenses that can't be bartered for, such as a mortgage, health care expenses and utilities. Bartering can also have a psychological benefit; it can create a deeper personal relationship between trading partners than a typical purchase and sale transaction. Bartering can also help people build professional networks and market their businesses.
Planning to Barter
When you think about what you can barter to obtain a good or service you want, consider personal possessions that others might value as well as special skills that you have to offer. If you are a licensed professional, you can arrange to barter what you do professionally. For example, you can trade accounting or legal services for professional services of equal value. You can also barter any other activity you're proficient at, such as cleaning, babysitting, yard work or baking. You could even trade the use of personal possessions for a service. For example, if you know a professional editor who needs to move furniture, you can trade the use of your truck in exchange for the editor's help with proofreading your new marketing newsletter.
Limitations of Barter
One limitation of bartering is that you can only exchange goods and services with people who want them. In many cases, bartering is limited to people in your local area. If you don't know anyone who is offering what you want, you might have a hard time getting it through bartering. However, you can find more people to trade with through bartering groups and bartering websites.