Advantages & Disadvantages of Bartering

Bartering lets you trade something you don't need for something you do.

Bartering lets you trade something you don't need for something you do.

Bartering is an ancient concept. Before the creation of currency, it was the sole form of purchasing goods and services. Despite the fact that economics has evolved considerably, bartering is just as legitimate today. Considering the number of expenses you deal with, it never hurts to seek an alternate way to buy without monetary exchange. However, bartering is not always simple, nor is it always the best choice. Before you decide to enter such a deal with someone, there are some benefits and drawbacks to consider.

Bartering

The Internal Revenue Service (IRS) defines bartering as "the trading of one product or service for another." You may remember doing this during childhood, trading snacks or toys. The same concept applies in adult life, albeit with more valuable products or services. The key difference between bartering and buying is that bartering does not involve a monetary transaction. You simply offer an item you do not want in exchange for something you desire.

The IRS has made it a point to define bartering for a good reason - any gains you receive through barter are taxable income. If you exchange an item for one with a higher market value, the difference in value is taxable income. The profits and losses you incur through bartering are typically reported on Schedule C or on the "other income" line of Form 1040 when filing your taxes.

Advantages

One advantage of bartering is flexibility. You can trade one related product for another -- such as a laptop for a portable tablet -- or two completely different items -- like a television for a lawnmower. You can even save money on travel by trading homes, allowing friends to stay in your residence while you borrow their cottage or house for recreation or proximity. You also have the option of bartering with and for services rather than material items. Instead, you may offer maintenance, construction or other services in exchange for material goods or other assistance. Of course, barter offers the clear advantage of saving money. Not only do you get something you need or want, but neither party has to spend a cent.

Disadvantages

While bartering has immediate benefits, it can also cause serious complications. This is especially true if you can't guarantee the trustworthiness of your fellow trader. The other party may not have certification or any proof of legitimacy, and you don't have a warranty or consumer protection advocate when you barter. You may end up trading a good item or service in exchange for a defective or poor one. If this concerns you, limit your exchanges to friends and family. Bartering also requires skill. You may overestimate the value of your desired item and underestimate yours. As a result, the other party could exploit you. To prevent this, focus on related items with similar value, such as one large appliance for another.

Resources

If you want to trade with other people, online bartering sites are a fast way to advertise. You may choose to join a barter exchange. For a fee, barter exchanges help you find the goods and services you need. They will also keep track of your exchanges and send you the information you need to accurately report your barter transactions at tax time.

If you want to avoid the fee, you can also enter into bartering agreements on your own. The online classified listing known as Craigslist, for example, is a household name and boasted 55 million visitors a month in 2017. This site does not specifically focus on bartering, but it does allow people to do so. Other sites focus on bartering specific items, such as trading clothes or video games. An internet search will provide you with an immense variety of swapping sites you can use to make direct connections with other traders. You can even limit your search to local groups and avoid shipping costs.

 

About the Author

Alex Saez is a writer who draws much of his information from his professional and academic experience. Saez holds a Bachelor of Arts in English literature from Queen's University and an advanced diploma in business administration, with a focus on human resources, from St. Lawrence College in Kingston, Ontario.