Bartering Art? Don't Forget the Tax Man
Barters and trades of goods and services represent an increasingly significant percentage of our economy, especially since the advent of organized barter and trade exchanges. Artists barter their art all the time. Peter Max, to cite a high-profile example, was once involved in a dispute with the IRS over the amount of tax owed on art that he bartered. With these facts in mind, now is a good time to review the tax laws pertaining to barter and trade in the United States.
The two possible types of trade or barter are known as "retail trade exchange" and "corporate barter." The law states that appropriate state, local, and federal taxes must be paid on either type of transaction. Corporate barter only applies to multi-million dollar companies. Retail trade exchange is what artists normally engage in and what is at issue here.
An example of a retail trade exchange would be an artist trading a painting to a furniture store for a $1000 dining room table. For each party involved, the government views that trade as two separate and distinct $1000 cash transactions. (1) The artist "sells" a painting for $1000 and (2) "buys" a dining room table for $1000 (visa versa for the store owner). As a "sale," that $1000 is viewed as income (income taxes apply). As a "buy," that $1000 is viewed as a retail purchase (sales taxes apply). In other words, the artist and the store owner each owe state and federal income taxes on $1000 worth of income and state and local sales taxes on $1000 worth of retail purchases.
If, however, the artist trades the painting to an art store for $1000 worth of art supplies, her tax ramifications are slightly different (they remain the same for the art store owner). The "sale" of the painting for $1000 is still taxable as income and the "buy" of the art supplies for $1000 is still taxable as a retail sale. But because those supplies are used to make art, the artist can now deduct them as a $1000 business expense. In other words, the $1000 worth of income is offset by the $1000 deduction.
This information was provided by Steve Goldbloom of the former Bay Area and Hawaii Barter Exchange. His company, like most barter and trade exchanges, handled art. When I mentioned the Peter Max tax dispute as my reason for calling, Mr. Goldbloom informed me that not only does he have Max's work hanging in his office, but that Max's work and that of other artists are also available through his company.
According to Goldbloom, Bay Area and Hawaii Barter and Exchange oversaw all tax collecting. Members paid all sales taxes in cash whenever they made transactions. As for state and federal income taxes, members received 1099 Forms at the end of each tax year stating the total amounts of their "sales" of goods or services during that year.
What surprised me in researching this article is that more artists make their art available through barter and trade exchanges than I thought. This is apparently a very viable income option for certain artists, especially those whose names and art are relatively recognizable. As a member, an artist can receive just about any goods or services that she would normally pay for simply by trading art. Artists who think that they can make this type of arrangement work should search the keyword combination of "barter," "trade" and "exchange" online, and send a few emails or make a few phone calls to explore their options.
Disclaimer: Please be aware that I am not an attorney and that the contents of this article should not be construed as legal advice. If you have any questions of a legal nature, consult an attorney.
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