There are many reasons that, as a society, we’ve gone over to using money, rather than sticking to a barter system. One big reason is accounting, as it’s much easier to keep track of dollars coming in and going out than it is to track a variety of services and products that all have different values.
But there’s still plenty of bartering going on. For those who want to barter on a regular basis, it’s important to keep track of where your finances are, even if you aren’t working entirely on a cash basis. Not doing so may not have the immediate dire impact of not keeping up with your monetary bookkeeping, but it can have a lot of problems.
Trade Deficits Aren’t Just a National Issue
If you barter regularly, it’s not out of the question that you might find yourself on the wrong side of a trade deficit — where you’ve traded more to someone else than they’ve traded back. At the most basic level, keep track of your non-cash transactions can help you make sure that you’re actually making good deals.
Because you probably don’t have a price tag on every good or service you barter, it’s a lot easier to wind up with a bum deal. It’s also possible to over-barter, just as you might over-spend. Having records you can refer back to is an important step to make sure that you’re really doing better by trading than you might by selling those products and services for cash, as well as spending your own cash on goods and services.
Of course, if you only barter occasionally, keeping records isn’t necessary. But if you’ve made non-cash transactions a big part of how you get what you need, tracking what you’ve been up to is crucial.
Keeping Up With Your Taxes
The trades you make are just as subject to tax as income you earn any other way, assuming you’re trading the goods or services you sell in your business. It’s harder for the IRS to track trades than money that passes through bank accounts (leading to some people being less likely to report such income), but it’s not impossible that a tax official could come asking about your bartering transactions in the event of an audit. The laws governing taxes for bartered income can be complicated: barter exchanges (groups that barter between members) can be subject to taxes.
I always recommend learning as much about tax law, as well as following it as closely as possible. Situations in which you barter are no different. You should consult with an accountant or another tax professional if you have any questions about how non-cash transactions can impact what you owe come tax time. If bartering makes up a significant portion of your income, it may be necessary to find a tax professional who has more expertise in that area.
The Mechanics of Tracking Your Barters
There isn’t exactly a bookkeeping software package that can handle the fact that you traded an hour of computer repair work for an hour of yard work — it’s just too complicated for most software packages to handle. There is a solution that you might consider using if you want to keep track of everything in one place by assigning a financial value to every transaction you make though. You can record such transactions based on their dollar amount and record the actual good or service in the ‘notes’ field that most bookkeeping tools provide.
Otherwise, you’re probably going to have to come up with your own system. A spreadsheet may very well work out as a tracking method for you, provided that you’re diligent about recording each transaction you make. Even then, it may be worth keeping track of the dollar value of the moves you make. It makes it a lot easier to see how funds are going if you do so.
It’s also worthwhile to think in terms of what you’re willing and able to barter — an inventory, so to speak. If you barter the same goods or services over and over again, you probably don’t have an unlimited supply. That means that you have to budget where you’re going to trade those resources for what you want and need. The premise isn’t all that unusual: if you’re trading your ability to work, you can’t work more hours than there are in the day. If you have a day job, you probably actually only have a few hours available to work each week.