Bartering & Trading
Artists often barter and trade their work in exchange for goods and services, such as medical and dental work, outside labor, materials and supplies, and sometimes even rent. It is important that you know how the IRS regards such transactions so you do not get yourself into trouble.
There are two kinds of bartering and trading systems: the “retail trade” exchange and the “corporate barter.” Most artists engage in retail trade, since corporate barter applies to multimillion-dollar companies. Applicable federal, state, and local taxes must be paid on both transaction types. An example of a retail trade exchange is trading a work of art for another commodity. Assuming that the trade is for items of equal value—say, the car and the artwork are each valued at $2,000—then each receivable must be treated as income. This means that both the car “buyer” (artist) and the car “seller” owe federal, state, and local taxes on $2,000.
If the artist barters for supplies and materials to be used for making artwork, the tax ramifications are different—the artwork is taxable to the receiver as if it were a retail sale, and the artist can deduct the fair market value of the goods, as with any other business expense.
There are many “Barter and Trade Exchange” groups online that help facilitate such transactions. Many new groups within communities have set up bartering exchanges. They all operate differently, but consider contacting one of these groups if you are interested in doing an exchange.
Artists have been taken to court to pay back taxes on bartered items that were not reported as income to the IRS. Check your local laws and be sure to keep a record of all transactions. If the IRS audits you, they will look for such failures to disclose.
Here is an example from the IRS website:
“An artist gives a work of art she created to the owner of an apartment building in exchange for six months rent-free occupancy. The artist must report the fair market value of the apartment as income on Schedule C or Schedule C-EZ (Form 1040) and the apartment building owner must report the fair market value of the artwork as rental income on Schedule E (Form 1040). Both should agree to report the exchange.”
Be sure you work out any details of bartering or trading with your gallery and/or dealer; your agreement with them might be violated should you choose to barter without giving notice.
In addition, make sure that you are bartering a fair and equal trade. If you are bartering a work that is worth $1,000 for a $500 trade, you are selling yourself short. Artists deserve respect for their work, as does any other working professional.