Now that a business owner joins a barter exchange, reciprocates referrals, and grows the business, how does Uncle Sam get his share of all that trading? It doesn’t matter how. It just matters that he gets it.
Barter exchanges know the inside outs of taxes. They have to. In 1982, the Internal Revenue Service (IRS) recognized the revenue passing between businesses through bartering, which prompted the creation of Tax Equity and Fiscal Responsibility Act (TEFRA). Barter exchanges complied. As third-party record keepers, they track sales, broker commission fees, and purchases, and provide monthly statements, similar to a bank. As such, they are required to report to the IRS the actual dollars earned for the year, per member, on a 1099B form. The IRS requires the exchange to report and send all of their members’ 1099B sales electronically.
When joining an exchange, members receive a Form W -9 that requires a taxpayer identification number, such as social security. Members also receive Form 1099-B to report their barter income, which matches figures of the exchange’s 1099B. The form shows the value of cash, property, services, credits, or scrip.
Just about any income, including barter, is taxable. “Whether you have to report it or not, doesn’t change the taxability of it,” says accountant, George Famiglio of Famiglio & Associates, and member of the International Barter Exchange (IBE) in Sarasota, FL. “Whether you do an independent contracting for a company and they pay you, and they forget to send you a 1099, that doesn’t change anything. It’s taxable no matter what.”
As members receive monthly statements from the barter exchange, they keep on top of their deductible expenses. “The goal is to have your expenses off-set your tax liability,” says Anne Unger Weiser, Director of New Membership Development with IBE. “If you deducted all your proper business expenses, you may come up with a zero balance to the IRS.”
According to the IRS, like other income, barter income, from an exchange or individual barter partners, can affect total income tax liability, self-employment tax, excise taxes, state taxes, and employment taxes. If members have completed transactions where the fair market value of the property is more than their cost, the transaction may be reported as business income or capital gains.
At tax filing time, Famiglio suggests the bartering business owner gather invoices, the 1099 B form, and all of their accounting work. Those barter exchange statements make it easy. At least, for Famiglio. “Smart clients are always on fiscal years,” he says.
Business expenses related to barter transactions may be deductible as legitimate business expenses. Deductions can include the initial fee of joining a barter exchange, and, the monthly administration fee, as well as office, vehicle and other operating costs.
Bartering also could result in non-deductible personal loss, capital losses, or ordinary business income. For example, a business owner trades five trucks for five new trucks. “There’s no gain because he’s not selling them out to a third party,” Famiglio says. “He’s giving them to a dealer for five new trucks. The tax advantage is, he doesn’t have to report any gain on the trucks.”
Complicated? Not so. “There’s nothing magical about it,” says Famiglio. “Whatever is going to be deducted anyway, it is going to be deductible by barter. So, if somebody pays me in barter credits and I get $500, that person can deduct $500 because they paid their CPA $500.” Or a florist barters $1000 for flooring, he deducts $1000. Bartering can apply to charity.
Paying tax on the value of goods or services wasn’t always tracked for societal benefit. Since the first Mesopotamia tribes traded their goods and services around 6000 BC, bartering expanded. A bartering system was adopted by Phoenicians, improved by Babylonians and used to pay Roman soldiers’ salaries with salt. In the middle Ages, Europeans traveled to barter furs and crafts. Colonial Americans traded ammunition, deer skins and crops. Though bartering maintained an alternative method of payment in rural areas, it gained popularity throughout the United States during the 1930s Great Depression.
Individuals continue trading, taking chances, trusting strangers. Businesses owners, who trade one-to-one, do so at great risk. The risk involves two parties who may not have a “coincidence of wants,” in which they both want what the other has. The items may not be of the same value, or, simply, one trader feels he didn’t get the quality that he traded away. Barter exchanges remove that risk, making the activity of doing trade, business.
Where there is business income, there are taxes. As a business owner adds bartering to his marketing plan, Famiglio suggests the owner include a certified public accountant that is tuned into barter. Bartering is “such a great way to expand your business,” he says. “When you can trade advertising, professional services, janitorial, office services– whatever. That’s smart to do.” It’s a smart way to expand, but it’s also smart to implement bartering within the operating costs of a business, especially, if that business has employees. For example, businesses that once provided a health care insurance plan for employees, and, no longer can afford it, find another way. Companies offer bartering to employees as compensation and bonuses, as long as those goods and services are reported on Form W-2, as they are subject to FICA, FUTA and federal income tax withholding.
“Once you join a barter system, you get a degree in economics automatically, because you understand what the economy is actually about,” says Famiglio. He encourages business owners to grasp a little knowledge of bartering and the tax industry, and find professionals who are unafraid. Simply, barter dollars work as actual dollars. “The uninformed accountant may say, ‘Oh, that’s barter. That’s weird stuff. I don’t want to learn about it’,” says Famigliio. Yet, bartering is not a tax tool; it’s a method of expanding one’s business. And, if that business owner understands the tax benefits, he may enjoy using a superior marketing tool and adding cash to his wallet.
Imagine a party for business-owners, where the conversation becomes dry, dull and heading toward politics. There’s the inflated know-it-all ready to divulge his latest diatribe at the guests. You step in, ready to diffuse. How would you steer the conversation? Perhaps you would focus on common ground: their businesses. Or, invite stories on how these individuals developed and grew their businesses. If Kevin Henault, owner of Veteran Air Conditioning in Sarasota, Florida, was at that party, he would credit a savvy sense of marketing through bartering.
When Henault and his business partner started an air conditioning business in 1993, they knew their number one priority was: get their name out “any way we could.” A friend had suggested they join the International Barter Exchange (IBE) in Sarasota. Subsequently, they grew a successful business. When Henault struck out on his own with Veteran AC, he says, bartering “absolutely played a role.” Bartering was “one of the first things I did,” he says. “It was part of my advertising strategy. I had seen how it helped me in my first business. I knew, automatically, I needed to be involved with it in my second business.”
Organized barter exchanges help businesses draw in the clients. Barter exchanges are sophisticated independently-owned companies, designed to promote businesses using alternative currency. They help members conserve valuable cash flow; increase exposure in the community; expand purchasing power; and adhere to Internal Revenue Service guidelines in the United States, thus elevating the standards of and beliefs about bartering.
Says one eight-year barter exchange member and franchise owner of a floor care business, “Plain and simple. The best reason to use barter is that they bring me new business. I’ve spent 44 years in the floor care industry. I started out with zero customers and now I have 70,000.”
Historical documents prove that, people all over the world have bartered as part of the human condition. Today, in the U.S., barter and complementary currency industries number 1100, and exchange $800 billion worth of goods and services. Some have joined umbrella organizations, such as the National Association of Trade Exchanges, (NATE) in the U.S., or The International Reciprocal Trade Association (IRTA), serving barter exchanges globally. Here’s how members of bartering exchanges receive new business:
Barter members become friends, and, in exchanging business transactions, a bonding occurs, loyalties emerge, and referrals exchange, as, people like to do business with people they know and like. A key study on referral programs by Philipp Schmitt, PhD marketing student, and professors of marketing, Bernd Skiera and Christophe Van den Bulte, at Goethe University in Frankfurt, Germany, found promising results for business owners. The study notes, “ Tracking approximately 10,000 customers of a leading German bank for almost three years, we find that referred customers (i) have a higher contribution margin, though this difference erodes over time, (ii) have a higher retention rate, and this difference persists over time, and (iii) are more valuable both in the short and long run.” The study also concluded that the average value of a referred customer is at least 16 percent higher than that of a non-referred customer with similar demographics.
Members may participate in a lifestyle they would not have had without bartering for goods and services. And, they want to share. If a member of a barter exchange that belongs to NATE, wants to do business with another company in barter exchange elsewhere that also belongs to NATE, the parties can enjoy that trade. New, cash-paying customers don’t always arrive due to members doing “business,” however. For example, a plumber in a Florida exchange vacations in New York. He may seek a hotel that belongs to a New York barter exchange. If both barter exchanges belong to NATE, the transaction occurs. How does “cash” come into play? The New York hotel may offer the room in trade, but, the visitor pays cash/credit for dining, valet service, room charges, laundry, or health and beauty amenities. The New York hotel just received trade dollars and cash. The plumber returns, tells his Florida contacts about his fabulous vacation hotel, and, they book a trip to NY. Those members may or may not be part of the exchange. Either way, the Florida member has generated new business for the hotel and had the pleasure of using alternative currency.
Social media spreads the word globally. Members tout the great service they received from a company and in a click of a computer key, local, national and international viewers can learn about that company. Barter brings in new business that could never be acquired in any other way. A person on the other side of the world may not be able to physically use that business. But, the viewer may know someone in the location of that business and pass along a cash-paying referral.
Rapid client turnover or seasonal businesses, such as hotels, restaurants, theaters and housing rentals fill their vacancies with barter members or their families, or friends. Instead of relying on heavy discounts, these businesses accept barter currency, and the non-members become new cash customers.
Henault says he built up his trade account as he offered his ac services to barter members. That allowed him to barter for invoice printing, office cleaning and other services, to put right back into the business.
If anybody asks Henault what he recommends to grow his business, he says, join a barter exchange:
“If they’re in Manatee or Sarasota County, and they’re not using IBE, they’re crazy. It’s been nothing but a positive. Every time I go to an IBE barter networking group, I meet new people and they become new clients. And, I continue to grow from that. I’d highly recommend it.”
Even the most confident entrepreneur faces the daunting task of launching a business. Where the business owner envisions the final product, he may be blind to what steps he needs to begin. Where will it be located? How many employees? How to get the necessary funds? How will he lay out a foundation to build a lasting, growing enterprise? Many of those questions can be answered with the ancient, but updated practice of bartering.
Building a Foundation
“Create building plans and have them approved by the local building commission.”
When an entrepreneur, such as a contractor, joins an organized barter exchange, he is announcing his business has arrived and he needs support. He may need to set up a physical space, an office and an alarm service to get started, and he can get all those things through a barter exchange. By networking with other barter members, the entrepreneur can build a strong foundation by developing the opportunity to generate referrals; confidence from talking with other members; the opportunity to forge partnerships; the opportunity to build a reputation by being visible in the community; and the opportunity to develop lasting friendships.
“Mark the foundation layout with paint lines in the dirt.” After setting up, the entrepreneur needs to designate those items he requires to operate his business. Through networking with exchange members, he finds sources for supplies, advertising venues, or anything else that can be traded. Networking helps people build relationships. In a barter exchange, relationships help entrepreneurs build their businesses.
“Set up batter boards for all corners.” A barter exchange provides a competitive edge. Members “set up batter boards” by conducting business transactions only with other members, and locking out the competition of non-members. Members enjoy the services of barter members as customers, plus their referrals. They have an incentive to refer other members’ services to all of their contacts.
“One of my barter clients called me to do some repair work on the roof of his building,” said Gary G., a barter member and owner of a roofing company in Rochester, N.Y. “He was so pleased with the job that he also contracted with me to do a tear-off and replacement on the roof at his home. When I started the job I put my sign — which by the way, I bartered to have printed — in his front yard. Two of his neighbors saw the sign, stopped by while I was working on the roof, and asked if I’d look at their roof as well. It turns out that I got two new cash customers as a result of my barter deals.”
“Dig the foundation with a backhoe to the depth presented in the building plans. Install rebar into the foundation holes to reinforce the ground structure.”
Dale DesJardins, owner and founder of Absolute Aluminum, is based in Venice, FL. Twenty two years ago, Desjardins began digging his foundation when Absolute Aluminum became a member of the International Barter Exchange (IBE) in Sarasota, FL. DesJardins has experienced company growth, clientele ebbing and flowing, busy seasons, down times, new products, and an evolving industry. He built Absolute with bartered goods and services and by developing relationships, or “installing rebar,” to strengthen and reinforce continual business. “We use it regularly,” he says. “To me, barter is just another form of currency.”
“Fill in the footings with concrete and allow a few days for it to dry.” As Absolute expanded, DesJardins fortified his business foundation with bartered services from members in his field, such as electricians, plumbers, tile installers and other services. Additionally, he benefited from trades with office suppliers, and advertising venues.
“Set up the plumbing lines. Build the foundation walls. On top of these build up with brick.”
Barter members supplied DesJardins with new customers, solidifying a strong customer base; just another brick on the wall. He says his clients feel comfortable when he gives them the name of an IBE member, in reciprocation. “It’s a better referral, because the client has already dealt with someone they know.” When the member’s business thrives by using alternative currency, so does the barter exchange.
“IBE is only as strong as our members, “ says the IBE website. “In 23 years of business we have learned that for every IBE Member relationship you build and create commerce which potentially brings three cash referrals.”
“Use straps or bolts to anchor the sill plate to the foundation. Do this when the concrete is wet so it sets with the drying concrete.” Members may never have to use the services of other members until a crisis happens. DesJardins repeatedly bartered with the same types of businesses while growing his company. But during a slow period IBE Barter became his anchor. He had acquired enough barter dollars to pull him through the 2008 economic plunge.
“I used that money to offset a lot of ongoing expenses, like using a shredding company that I had never used before,” remembers Desjardin. “I had never used some trades, like vehicle wraps. It also brought business, when things were slowing down and I needed every sale that I could get.”
Those years of networking and doing business with other members laid the foundation that stabilized his company during difficult times.
“Fill the inner area with gravel. Cover with plastic. Pour concrete over the plastic. Smooth the surface with a concrete smoother. Allow the concrete to set.”
The barter exchange sales team helps members smooth the transition from an ebbing and flowing economy. They promote and introduce the products and services of members who may not cross paths in prosperous times. When the economy plummets, the staff ferrets out ways to help members avoid lay-offs or discounting their services.
Mark J., a contractor in a barter exchange, had experienced a sharp decline in the construction industry following the 9/11 terrorist attacks. Simultaneously, he needed a new website and upgraded electronics to run his business. He took action and joined a barter exchange. Within months, he had rebuilt his lost revenues, bartered for a website, and strengthened the infrastructure of his company while the economy recovered.
“Barter really helped save my business and allowed me to carry on rather than face the possibility of closing after 9/11,” says Mark J. “Barter helps to maintain business levels because everyone involved agrees to do business with each other.”
“You just built a foundation!”
When launching a business or growing an existing one, the first step begins with a foundation of relationships. “You have to be relationship building, and that is never going to change,” says Mary Unger, co-owner of IBE. “Even with all this technology–it is an added benefit, a tool. Me talking to you? That’s where you build your business. It’s still the personal touch that matters.”
Dr. Michael Kanter talks about seeing the whole picture. He views his business, his home, and his relationships as integral pieces of a puzzle. He can do that, inwardly, sitting in an office chair, or, piloting his Piper Saratoga, getting a “bird’s eye view” of things.
Those “things” began, as a child, whose favorite uncle was a dentist. He knew he would follow his uncle’s footsteps, and became a dentist, too. He built three dental practices in the Sarasota, Florida area and currently practices at Lakewood Ranch Dental.
Things turned into a thriving 25+ year dental practice, family, a home on the water, a condo in the Bahamas, and the opportunity to snorkel, fish, dive in “absolutely gorgeous, crystal clear blue water.” Those entire pieces slide into place, based on drive, love of work, and a vision to grow a dental practice where, in one testimonial from the Lakewood Ranch Dental website, “it felt like they were all one big family.”
Kanter built his puzzle with an open mind. In 1983, upon returning to Sarasota after general practice residency in Jacksonville, Florida, he launched his original practice, accepting cash and insurance. “That’s when I got into bartering, when I joined IBE (International Barter Exchange),” Kanter says. “When you first start, it’s slow and you try to bring in additional business through whatever means reasonable.”
As a business person who eats out, “a lot,” Kanter befriended a member of IBE in the restaurant business and promptly joined. Finding bartering a promising marketing tool, he joined another one. He did not stay long. He had experienced inequality of reciprocal referrals, questionable pricing amongst members and no follow up from the administrators.
IBE Barter conducted the bartering service completely opposite. “IBE worked well for me,” says Kanter. “As time went on I got more and more IBE barter patients. The good thing about it is, if they are happy with your service, they’ll refer people to you who are cash patients.”
Kanter did not use barter to create a “State of the art facility,” according to the website. However, barter dollars provided office supplies, carpet cleaning and other services. “I had bartering from my first office,” he says. “When I opened my Lakewood Ranch office I continued doing barter because it was something that always worked for me.” Kanter has recently added Pediatrician Dental Services to the IBE Barter Community.
Today from that bird’s eye perspective, Kanter sees about 1000 patients, but doesn’t know how many pay with barter credit. Many have become a staple of his practice. “It doesn’t matter what form of payment my patients use. Being here so long and having so many patients that have been patients for so long, and they have families, I know, there are a good number of IBE patients when they come in,” he says.
Three practices and plenty of word-of-mouth advertising, Kanter says he doesn’t need barter as a tool to build his current business, but, has no reason NOT to have it. After all, he added another piece to the puzzle when he added bartering for personal use. With bartered home care services, a pool remodeling, dining, and “other services you would use anyway,” Kanter says, “it just works real well for me and that’s why I stayed in all these years. The IBE owners “made it pleasurable and very beneficial for me,” he adds.
And, beneficial to his fellow members. Kanter continues to refer IBE services that he has enjoyed using. “I take people to IBE restaurants, and they go back as new customers,” he says. “I’ve referred my plumber, my lawn guy—all kinds of businesses. I’m real happy with my laundry service. They pick up and deliver without extra cost. If somebody is doing a good job, and they’re working with me, I’ll recommend them. It’s the right thing to do.”
In turn, Kanter has seen his referred clients arrive as one-time patients and leave as ongoing clients. “They’ve already been told something good about your practice,” he says. His approach is to figure out the patients’ comprehensive needs. Even if it is an episodic patient, “Once we address that,” says Kanter, “we always do our best to convert the patient to a comprehensive, so they could basically prevent those kinds of problems from happening. Our practice is almost all comprehensive care. It just worked out that way.”
It also worked out to build a loyal staff, some who have been with his practice for 15, 18, and 27 years. “My staff is so wonderful,” says Kanter. “Everybody knows everybody; they know what works; how to make everybody happy. It just makes everything flow. When you have a crew like that, it makes life so easy.”
Bartering makes it easy to reward his staff. On a regular basis, Kanter offers IBE restaurant scrips, Christmas gifts, holiday bonuses and other members’ services to his staff. Unlike some businesses that have dropped health care for their employees, and finding alternative methods to compensate, Kanter doesn’t offer bartering as an option or replacement. He provides health insurance for his employees. He says the dental industry has not been affected by the new laws, as much as the medical community. Still, he has seen unfortunate changes.
“The way the insurance companies are cutting reimbursement down so low, a lot of times it works out better for me to do a barter patient than an insurance patient,” he says. Some of his patients who barter for their treatment would be unable to get dental care if they could not barter.
Kanter says whether his patients pay with insurance, cash, or IBE barter, it is the conglomeration of everything that makes his practice successful and completes the puzzle.
“I guess if you left out anything, you’d have less of a total picture,” Kanter says. “Then maybe you wouldn’t be able to afford some of those things, because your total picture is less. Like my beautiful airplane. If you add it up, how much cash money I saved just using barter, going out to dinner for a year that would probably cover the airplane maintenance for a year. I didn’t get my airplane through barter, but definitely the total picture of having that extra income and ability from it, allowed me to divert other money toward that hobby.”
When joining an exchange, members receive a Form W -9 that requires a taxpayer identification number, such as social security. Members also receive Form 1099-B to report their barter income, which matches figures of the exchange’s 1099B. The form shows the value of cash, property, services, credits, or scrip.
When Henault and his business partner started an air conditioning business in 1993, they knew their number one priority was: get their name out “any way we could.” A friend had suggested they join the International Barter Exchange (IBE) in Sarasota. Subsequently, they grew a successful business. When Henault struck out on his own with Veteran AC, he says, bartering “absolutely played a role.” Bartering was “one of the first things I did,” he says. “It was part of my advertising strategy. I had seen how it helped me in my first business. I knew, automatically, I needed to be involved with it in my second business.”
Historical documents prove that, people all over the world have bartered as part of the human condition. Today, in the U.S., barter and complementary currency industries number 1100, and exchange $800 billion worth of goods and services. Some have joined umbrella organizations, such as the National Association of Trade Exchanges, (NATE) in the U.S., or The International Reciprocal Trade Association (IRTA), serving barter exchanges globally. Here’s how members of bartering exchanges receive new business:
“Set up batter boards for all corners.” A barter exchange provides a competitive edge. Members “set up batter boards” by conducting business transactions only with other members, and locking out the competition of non-members. Members enjoy the services of barter members as customers, plus their referrals. They have an incentive to refer other members’ services to all of their contacts.
“Fill in the footings with concrete and allow a few days for it to dry.” As Absolute expanded, DesJardins fortified his business foundation with bartered services from members in his field, such as electricians, plumbers, tile installers and other services. Additionally, he benefited from trades with office suppliers, and advertising venues.
Three practices and plenty of word-of-mouth advertising, Kanter says he doesn’t need barter as a tool to build his current business, but, has no reason NOT to have it. After all, he added another piece to the puzzle when he added bartering for personal use. With bartered home care services, a pool remodeling, dining, and “other services you would use anyway,” Kanter says, “it just works real well for me and that’s why I stayed in all these years. The IBE owners “made it pleasurable and very beneficial for me,” he adds.