The tax collector doesn't barter!

Usually, we will barter with friends and neighbors. Our small deals won't be worth mentioning to the tax collector. But someday we will be trading our Ford pickup truck or our professional hair-styling skills, or something else which is valuable. We will need to know more about taxes.

Many people believe that a barter deal isn't taxed, but that is not true. We must know whether to report a trade, so that we will know the difference between a free swap -- and tax fraud.

In the United States, the Internal Revenue Service says that most trades are taxed the same as a cash deal. For example, if your Dad gets $200 worth of beef from a farmer in exchange for mending the famer's fences, your Dad must report the $200 as taxable income. And the farmer, too, must report the $200 as taxable income.

Even an exchange of gifts can be taxed if it doesn't meet the U.S. Supreme Court's definition. The Supreme Court says that "gifts" have to "proceed from a detached and disinterested generosity out of affection, respect, admiration, charity, or like impulses." The Court doesn't want people to call a business exchange a "gift exchange" -- even if your uncle swaps his bookkeeping skills for the baker's delicious "gift" (of 10 apple pies) at Christmas time.

Some trades are tax-free, like small neighbor-to-neighbor swaps. Those deals are too little to interest the IRS, so they do not need to be reported. Your Mom does not have to report the times when she swaps babysitting chores with her friend in the white Victorian home, or she gives Fred a freshly baked chocolate cake because he helped you to move, or she gives Alice some outgrown clothes after Alice offers some tomatoes from her rocky garden.

But your uncle must report deals where his professional plumbing skills are traded to a car mechanic who puts in a new muffler. Carol will report the gift certificate which she gives from her typing service to her accountant. Paul will report the deal in which he trades his car for a set of bedroom furniture.

For more advice, your parents can ask their tax consultant. (And they can read the tax chapter in Personal and Business Bartering, which is a part of Bartering With James Harvey Stout.)

We can all pay our fair share of taxes. Those taxes support a country where we can seek our pot of gold -- and then trade that gold for whatever we want.