As I understand the law, if you do a favor for someone with no expectation of return, and then they do a favor for you with no expectation of return, then no taxes are owed.
Of course, the IRS can't read your mind, and neither can the tax court. If your usual business is selling radio ads and his usual business is driving a snowplow, I doubt if the IRS would question it. But, if your usual business is setting up websites and his usual business is cutting down trees, the IRS might look askance.
In practice, as long as the exchanges are informal, I don't think the IRS is going to care. In the past, though, they have gotten involved when people set up bartering networks that let people keep track of how much they're owed. (There are bartering networks where you get 10 points for feeding my cat while I'm out of town, then spend them getting a babysitter in for your kids, after which the babysitter can spend them at the local video store. The IRS has gone after people involved in such things saying that each point was worth $1 or some such.)
Legally, though, if you exchange services with someone, you both owe taxes of the value of the service performed. If each service is done as a gift, with no expecation of a favor in return, then it's tax-free.
"#5 Use barter and the informal economy. If your neighbor hires you to help him create a website and you hire him to help you cut down a diseased tree next to your driveway, you both owe income taxes on whatever you're paid. If you instead swap these services informally, you still owe the taxes, but you're expected to declare the income at its fair market value. It's perfectly reasonable, though, to declare the income at what the service would have been worth the previous year."
you still have to pay taxes if no money was exchanged? what happened to doing each other favors?
Welcome to Wise Bread, Anthony! You bring some great ideas and frugal-minded points to the table with this article.
I would like to add to the mix however, that some family matters - even simple ones at the onset - can get complicated.
Example:
Mum (a widow) has two grown children: Jane and Bob. She has a Retirement Account, and a House - both of equal value. Jane has a young family and has expressed a desire for the house, so in order to make things "easy", she makes Jane title-owner to the house while she's still alive. Then in order to make things even, she designates Bob as the direct beneficiary to her Retirement Account. Great - each child gets what they want, and everything is even-steven.
Problem is, when Mum dies, the Retirement account is actually considered to have been "cashed in" (since it isn't being rolled over to a spouse), and the estate has to pay tax on it.
But who pays? Jane has the house free and clear, and doesn't have thousands of dollars kicking around for the tax bill with her family demands and lower income than Bob. She feels that Bob can afford the bill anyway, since he's single and a high-income earner.
But Bob doesn't feel this is fair, because it reduces the amount of his own inheritance and he doesn't feel he should solely be on the hook for this even though his inheritance is in the form of cash. Besides which, the house has gone up in value since Mum gave it to Jane and Bob is feeling jilted.
And so begins a rift in the family that takes years or decades to resolve, if it ever gets resolved. All because of what seemed like a simple estate requiring no professional planning.
The solution here may involve a strategicially purchased life insurance policy to cover off taxes and equalize inheritances. Or maybe even naming the estate as beneficiary, so that the taxes can be paid out of it and the remainder of assets can be distributed accordingly. Who knows. But I do still believe that having a trusted professional quarterbacking the plan can save not only money in the end, but heartache too.
(I will also note the above example may not be an issue in the US - I am referring to the Canadian legal and tax system. However it is my impression that the US is similar in this regard).
I guess I didn't really emphasize it, but I do think it's great that you're giving people ideas on how to use the chopsticks they already have. I just think it's important that people realize why using them one time because they think they're fun is a terrible idea and has consequences. Picking up new ones to use for alternatives isn't much better either if you don't have them on hand anyway. However, it's great whenever someone finds a way to keep something "disposable" from going to the landfill through new uses, so thank you for writing the article.
As far as the problem of finding info, I was getting frustrated because I was finding mentions of "Asian Environmentalists" who were working hard on campaigns against disposable chopsticks, while the sources in English were lacking. Most of the information I could find either didn't have citations or was over ten years old, which is a bit frustrating when trying to convince people that this is a real issue.
My husband used to use a radar detector before he got married, and it led to him driving more dangerously and getting more tickets.
He drove more dangerously because he would brake any time the detector gave him a signal. Often, this would be caused by a nearby semi. He would brake even if he was not speeding. This led to dangerous erratic driving.
Also, whenever he did get pulled over for any kind of minor moving violation, the officer would see his detector and give him the largest possible ticket instead of a warning. It should make sense that the officers aren't to fond of people who use this technology.
Thanks for the info. I did find info in my research about the "one-off's" or disposable chopsticks, including info on Asian governments implementing use taxes on the them or banning them altogether.
While I certainly wouldn't encourage someone who doesn't already use the chopstick to pick up the habit simply for fun, I happen to be one of those folks who save everything for long periods of time and then wonder, "What am I going to do with this?"
The idea for recycling chopsticks came to me when I picked up a case of the "one-offs" at a garage sale for free. After finding that I don't use them to eat, I wanted to give them a good use. Turns out that the "one-offs" can be gently washed in soapy water and air-dried. While I wouldn't use them again to eat (they tend to break down easier), I have found lots of alternatives to pitching them in the trash.
Until the demand for chopsticks goes away, they'll still be everywhere. Hopefully we can come up with more solutions to putting this harvested wood to good use!
There are some great ideas in that we will probably implement only in our electronic forms of tracking things we both have access to.
Lynne, Ironically my gym membership overdrafted our account this month also. It usually comes out right at the first of the month so I automatically assumed it already was taken out around the time our push bill pays go out on the first. It didn't post until the 8th and put us lower than I thought. I do wish they would let me set up and automated pay on my end but they insist on doing automatic billing from their end.
We keep every single receipt and it really is a wake up call to your spending. It was what got us off the restaurant habit years ago. We started seeing just how much of our income was flying away on eating out. I could never get anyone to hand write receipts for cash payments but my hubby is good about getting a store receipt for just about everything paid with cash.
The receipt collecting also has changed our buying habits into trying to consolidate our purchasing more. We try to get our grocery purchases onto fewer receipts so there is less to track. That also is a motivation to spend less on other things because t makes finances that hard to track.
We also live in a no income tax state so we can take a credit for our sales tax on our federal taxes. Since they tax groceries we frequently spend quite a bit on state taxes we will never get a state refund on and it does take a huge chunk off of our federal taxes.
A friend of mine showed me a chopstick trick for sewing. When you need to sew something and then turn it right side out, like a collar. Chopsticks work great for pushing the corners nice and clean when you turn it right side out. It works better than any of the other traditional sewing options that frequently push through the fabric and make a hole. It works great if your making something with a detailed shaped edge like a window valance.
This is only if an officer is using an "instant on" radar detector, which are much more expensive than what the average underfunded police station has. Standard radar detector's "beam" is actually more like a cloud when in use. Thus, your detector is actually seeing the cloud from over a half mile away (for the good-to-great ones). This is also why detectors will go off in front of grocery stores, as the automatic doors are using the same "cloud" spray for their radar.
The explanation of the core rate is still valid, but the current situation has changed a bit since this article was written back in October.
At that time, inflation was a concern--prices were rising and the dollar was dropping--but it looked like there was a good chance we could all just muddle through, as long as the Fed didn't start aggressively cutting interet rates. Then the Fed started aggressively cutting interest rates, because of the credit squeeze related to the subprime debt crisis.
Since then the CPI has jumped sharply higher, and the core rate has turned back up as well. The dollar has continued to drop and the price of gold has soared, along with the price of oil. All in all, it looks like a round of serious inflation is in the cards. (The Fed could prevent it, but doing so would probably bring down the whole banking system, which the Fed would never do.)
I've been trying to get in control of my finances for years, with some notable successes. However, the single most effective thing I've done to date was writing down every penny that goes in and out of my life (read about in Your Money or Your Life-great book). I haven't changed anything about my spending the last few months, and yet gone are the "surprise" overdraft fees, gone are the "oops I forgot my gym membership came out on the 15th, just like it has for the last 8 months...." Keeping that level of detailed track of my spending and income has thrust my financial situation into gritty reality, and it's made a huge difference. All because I have a little 99cent notebook in my purse.
Thanks for the article and the excellent explanation. So core inflation may not be as high as we feel from our day to day experience with prices. But even so, how can the value of money not be dropping like a stone the way the government is printing it like mad? Also isn't the declining value of US money against foreign currency a sign that our money is losing value?
Some cool ideas, especially for the garden uses. I agree, springing for a reuseable set is a good idea for at home use. But if you have a few kicking around anyway. . .
Another interesting tidbit I noticed? The Real Green Goods project is familiar to me. I noticed the name sounded familiar. I have a friend who knows one of the people who was involved with setting it up. Recognized the site immediately. From what I heard, they worked super hard to make this a great online store and I think they have a brick and mortar one in New Hampshire as well. Great to see them getting some exposure.
Although I'm glad you're giving folks ideas for reusing the chopsticks they have, I hope that this doesn't make anyone feel more at ease with using the disposable ones.
Disposable chopsticks are a huge source of deforestation around the world with some figures as high as 25 million trees being used each year. Furthermore, much of this wood has actually come from rainforests because the wood must be cheap, free of knots, and readily available. Now, disposable chopsticks are a source of deforestation in Canada as well, as illustrated here: http://www.american.edu/TED/canchop.htm .
It appears that much of the relevant information is difficult to find online in English, but it's not hard to understand how disposable utensils can be a tremendous waste.
If you still love to use chopsticks, pick up a set of plastic reusable ones, and take them with you when you plan to use them. Otherwise, I highly recommend you give up the novelty value for the environment and stick to the reusable fork the restaurant has on hand.
Cinnamon lolly pops are everyones favorite and they're only out around Christmas. I personally think that Valentines Day is a cinnamon holiday too. So I think that Cinnamon lolly pops should be around all year long.
I think you become process oriented because many things are routine (like bookkeeping) and other things don't bear fruit for a long time (like advertising, or long contracts, or royalties). Unlike in companies, where management give you strokes, bonuses, and announcements at meetings to celebrate (if it's a nice company), nobody is around to do this for you. You have to be your own back-patter.
I think redistributing money to the bottom will cause prices for basic things like food to rise, but, that's ok if this doesn't cause a rise in more expensive things like health care and housing.
haha thanks for these stories. They are pretty hilarious. I think sometimes people just being themselves a bit too much and oblivious to what others think.
Hey - good advice! I interview fairly frequently - thought I'd share some of the no-no's we had.
I help do the interviews for a number of introductory positions with our state environmental agency. Most of the applicants are just graduating from the university with science degrees. Some of the 'highlights'
1. One applicant had his hands in his pockets and jiggled 'everything' constantly throughout the entire interview. It was very uncomfortable for both of us interviewers, because we couldn't even look at him with out our eyes being drawn to the action. If you have that kind of nervous twitch, for the love, bring something to keep your hands busy besides yourself!
2. Midway through an interview one lady stopped in the middle of her answer to dramatically inform us that the natural aura's were changing and that it would rain soon...too bad for her it didn't rain that day.
3. Showing up a little early is okay, but showing up an hour or more early, and demanding attention (water, clipboard, copies of her resume, coffee, etc.) is another. One gal showed up exactly one hour early, kept our admin busy with her needs the whole time, and basically made a very poor impression on the whole office before she even stepped into the interview room.
4. Reeking of desperation is also bad. One guy brought a picture of his two month old baby and showed it to us as 'his reason for needing this job' and basically had a pleading tone the entire time. Yeah, I felt sorry for him, but he didn't give us any other professional reason to hire him.
Just remember, radar moves at the speed of light. If the radar detector goes off, those same waves have already bounced back to the police officer, and they already have your speed. Think of it as an early warning system that you will be pulled over more than protection from speed traps.
I have made countless donations to PBA, have the stickers in my car, it made no difference for either me or my wife. Still, remember this is a $100 detector in sale. I'm sure $500 detectors are way better, but I checked out the reviews and almost everyone gave it 5 out of 5.
As I understand the law, if you do a favor for someone with no expectation of return, and then they do a favor for you with no expectation of return, then no taxes are owed.
Of course, the IRS can't read your mind, and neither can the tax court. If your usual business is selling radio ads and his usual business is driving a snowplow, I doubt if the IRS would question it. But, if your usual business is setting up websites and his usual business is cutting down trees, the IRS might look askance.
In practice, as long as the exchanges are informal, I don't think the IRS is going to care. In the past, though, they have gotten involved when people set up bartering networks that let people keep track of how much they're owed. (There are bartering networks where you get 10 points for feeding my cat while I'm out of town, then spend them getting a babysitter in for your kids, after which the babysitter can spend them at the local video store. The IRS has gone after people involved in such things saying that each point was worth $1 or some such.)
Legally, though, if you exchange services with someone, you both owe taxes of the value of the service performed. If each service is done as a gift, with no expecation of a favor in return, then it's tax-free.
Interestingly enough, the best info I found by following a trail that started at Wiki...
"#5 Use barter and the informal economy. If your neighbor hires you to help him create a website and you hire him to help you cut down a diseased tree next to your driveway, you both owe income taxes on whatever you're paid. If you instead swap these services informally, you still owe the taxes, but you're expected to declare the income at its fair market value. It's perfectly reasonable, though, to declare the income at what the service would have been worth the previous year."
you still have to pay taxes if no money was exchanged? what happened to doing each other favors?
Welcome to Wise Bread, Anthony! You bring some great ideas and frugal-minded points to the table with this article.
I would like to add to the mix however, that some family matters - even simple ones at the onset - can get complicated.
Example:
Mum (a widow) has two grown children: Jane and Bob. She has a Retirement Account, and a House - both of equal value. Jane has a young family and has expressed a desire for the house, so in order to make things "easy", she makes Jane title-owner to the house while she's still alive. Then in order to make things even, she designates Bob as the direct beneficiary to her Retirement Account. Great - each child gets what they want, and everything is even-steven.
Problem is, when Mum dies, the Retirement account is actually considered to have been "cashed in" (since it isn't being rolled over to a spouse), and the estate has to pay tax on it.
But who pays? Jane has the house free and clear, and doesn't have thousands of dollars kicking around for the tax bill with her family demands and lower income than Bob. She feels that Bob can afford the bill anyway, since he's single and a high-income earner.
But Bob doesn't feel this is fair, because it reduces the amount of his own inheritance and he doesn't feel he should solely be on the hook for this even though his inheritance is in the form of cash. Besides which, the house has gone up in value since Mum gave it to Jane and Bob is feeling jilted.
And so begins a rift in the family that takes years or decades to resolve, if it ever gets resolved. All because of what seemed like a simple estate requiring no professional planning.
The solution here may involve a strategicially purchased life insurance policy to cover off taxes and equalize inheritances. Or maybe even naming the estate as beneficiary, so that the taxes can be paid out of it and the remainder of assets can be distributed accordingly. Who knows. But I do still believe that having a trusted professional quarterbacking the plan can save not only money in the end, but heartache too.
(I will also note the above example may not be an issue in the US - I am referring to the Canadian legal and tax system. However it is my impression that the US is similar in this regard).
I guess I didn't really emphasize it, but I do think it's great that you're giving people ideas on how to use the chopsticks they already have. I just think it's important that people realize why using them one time because they think they're fun is a terrible idea and has consequences. Picking up new ones to use for alternatives isn't much better either if you don't have them on hand anyway. However, it's great whenever someone finds a way to keep something "disposable" from going to the landfill through new uses, so thank you for writing the article.
As far as the problem of finding info, I was getting frustrated because I was finding mentions of "Asian Environmentalists" who were working hard on campaigns against disposable chopsticks, while the sources in English were lacking. Most of the information I could find either didn't have citations or was over ten years old, which is a bit frustrating when trying to convince people that this is a real issue.
My husband used to use a radar detector before he got married, and it led to him driving more dangerously and getting more tickets.
He drove more dangerously because he would brake any time the detector gave him a signal. Often, this would be caused by a nearby semi. He would brake even if he was not speeding. This led to dangerous erratic driving.
Also, whenever he did get pulled over for any kind of minor moving violation, the officer would see his detector and give him the largest possible ticket instead of a warning. It should make sense that the officers aren't to fond of people who use this technology.
Save your money and don't buy one of these.
Now that's cool.
Thanks for the info. I did find info in my research about the "one-off's" or disposable chopsticks, including info on Asian governments implementing use taxes on the them or banning them altogether.
While I certainly wouldn't encourage someone who doesn't already use the chopstick to pick up the habit simply for fun, I happen to be one of those folks who save everything for long periods of time and then wonder, "What am I going to do with this?"
The idea for recycling chopsticks came to me when I picked up a case of the "one-offs" at a garage sale for free. After finding that I don't use them to eat, I wanted to give them a good use. Turns out that the "one-offs" can be gently washed in soapy water and air-dried. While I wouldn't use them again to eat (they tend to break down easier), I have found lots of alternatives to pitching them in the trash.
Until the demand for chopsticks goes away, they'll still be everywhere. Hopefully we can come up with more solutions to putting this harvested wood to good use!
Thanks for the comments!
There are some great ideas in that we will probably implement only in our electronic forms of tracking things we both have access to.
Lynne, Ironically my gym membership overdrafted our account this month also. It usually comes out right at the first of the month so I automatically assumed it already was taken out around the time our push bill pays go out on the first. It didn't post until the 8th and put us lower than I thought. I do wish they would let me set up and automated pay on my end but they insist on doing automatic billing from their end.
We keep every single receipt and it really is a wake up call to your spending. It was what got us off the restaurant habit years ago. We started seeing just how much of our income was flying away on eating out. I could never get anyone to hand write receipts for cash payments but my hubby is good about getting a store receipt for just about everything paid with cash.
The receipt collecting also has changed our buying habits into trying to consolidate our purchasing more. We try to get our grocery purchases onto fewer receipts so there is less to track. That also is a motivation to spend less on other things because t makes finances that hard to track.
We also live in a no income tax state so we can take a credit for our sales tax on our federal taxes. Since they tax groceries we frequently spend quite a bit on state taxes we will never get a state refund on and it does take a huge chunk off of our federal taxes.
A friend of mine showed me a chopstick trick for sewing. When you need to sew something and then turn it right side out, like a collar. Chopsticks work great for pushing the corners nice and clean when you turn it right side out. It works better than any of the other traditional sewing options that frequently push through the fabric and make a hole. It works great if your making something with a detailed shaped edge like a window valance.
This is only if an officer is using an "instant on" radar detector, which are much more expensive than what the average underfunded police station has. Standard radar detector's "beam" is actually more like a cloud when in use. Thus, your detector is actually seeing the cloud from over a half mile away (for the good-to-great ones). This is also why detectors will go off in front of grocery stores, as the automatic doors are using the same "cloud" spray for their radar.
This is a great post for those needing college credit.
Those who just want to learn can get some really interesting classes in webcast or podcast form.
A number of colleges provide this service at no charge. UC Berkley is one example. http://webcast.berkeley.edu/
The explanation of the core rate is still valid, but the current situation has changed a bit since this article was written back in October.
At that time, inflation was a concern--prices were rising and the dollar was dropping--but it looked like there was a good chance we could all just muddle through, as long as the Fed didn't start aggressively cutting interet rates. Then the Fed started aggressively cutting interest rates, because of the credit squeeze related to the subprime debt crisis.
Since then the CPI has jumped sharply higher, and the core rate has turned back up as well. The dollar has continued to drop and the price of gold has soared, along with the price of oil. All in all, it looks like a round of serious inflation is in the cards. (The Fed could prevent it, but doing so would probably bring down the whole banking system, which the Fed would never do.)
I've been trying to get in control of my finances for years, with some notable successes. However, the single most effective thing I've done to date was writing down every penny that goes in and out of my life (read about in Your Money or Your Life-great book). I haven't changed anything about my spending the last few months, and yet gone are the "surprise" overdraft fees, gone are the "oops I forgot my gym membership came out on the 15th, just like it has for the last 8 months...." Keeping that level of detailed track of my spending and income has thrust my financial situation into gritty reality, and it's made a huge difference. All because I have a little 99cent notebook in my purse.
Great post
Thanks for the article and the excellent explanation. So core inflation may not be as high as we feel from our day to day experience with prices. But even so, how can the value of money not be dropping like a stone the way the government is printing it like mad? Also isn't the declining value of US money against foreign currency a sign that our money is losing value?
Some cool ideas, especially for the garden uses. I agree, springing for a reuseable set is a good idea for at home use. But if you have a few kicking around anyway. . .
Another interesting tidbit I noticed? The Real Green Goods project is familiar to me. I noticed the name sounded familiar. I have a friend who knows one of the people who was involved with setting it up. Recognized the site immediately. From what I heard, they worked super hard to make this a great online store and I think they have a brick and mortar one in New Hampshire as well. Great to see them getting some exposure.
Although I'm glad you're giving folks ideas for reusing the chopsticks they have, I hope that this doesn't make anyone feel more at ease with using the disposable ones.
Disposable chopsticks are a huge source of deforestation around the world with some figures as high as 25 million trees being used each year. Furthermore, much of this wood has actually come from rainforests because the wood must be cheap, free of knots, and readily available. Now, disposable chopsticks are a source of deforestation in Canada as well, as illustrated here: http://www.american.edu/TED/canchop.htm .
It appears that much of the relevant information is difficult to find online in English, but it's not hard to understand how disposable utensils can be a tremendous waste.
If you still love to use chopsticks, pick up a set of plastic reusable ones, and take them with you when you plan to use them. Otherwise, I highly recommend you give up the novelty value for the environment and stick to the reusable fork the restaurant has on hand.
Cinnamon lolly pops are everyones favorite and they're only out around Christmas. I personally think that Valentines Day is a cinnamon holiday too. So I think that Cinnamon lolly pops should be around all year long.
I think you become process oriented because many things are routine (like bookkeeping) and other things don't bear fruit for a long time (like advertising, or long contracts, or royalties). Unlike in companies, where management give you strokes, bonuses, and announcements at meetings to celebrate (if it's a nice company), nobody is around to do this for you. You have to be your own back-patter.
I think redistributing money to the bottom will cause prices for basic things like food to rise, but, that's ok if this doesn't cause a rise in more expensive things like health care and housing.
haha thanks for these stories. They are pretty hilarious. I think sometimes people just being themselves a bit too much and oblivious to what others think.
Hey - good advice! I interview fairly frequently - thought I'd share some of the no-no's we had.
I help do the interviews for a number of introductory positions with our state environmental agency. Most of the applicants are just graduating from the university with science degrees. Some of the 'highlights'
1. One applicant had his hands in his pockets and jiggled 'everything' constantly throughout the entire interview. It was very uncomfortable for both of us interviewers, because we couldn't even look at him with out our eyes being drawn to the action. If you have that kind of nervous twitch, for the love, bring something to keep your hands busy besides yourself!
2. Midway through an interview one lady stopped in the middle of her answer to dramatically inform us that the natural aura's were changing and that it would rain soon...too bad for her it didn't rain that day.
3. Showing up a little early is okay, but showing up an hour or more early, and demanding attention (water, clipboard, copies of her resume, coffee, etc.) is another. One gal showed up exactly one hour early, kept our admin busy with her needs the whole time, and basically made a very poor impression on the whole office before she even stepped into the interview room.
4. Reeking of desperation is also bad. One guy brought a picture of his two month old baby and showed it to us as 'his reason for needing this job' and basically had a pleading tone the entire time. Yeah, I felt sorry for him, but he didn't give us any other professional reason to hire him.
Just remember, radar moves at the speed of light. If the radar detector goes off, those same waves have already bounced back to the police officer, and they already have your speed. Think of it as an early warning system that you will be pulled over more than protection from speed traps.
I have made countless donations to PBA, have the stickers in my car, it made no difference for either me or my wife. Still, remember this is a $100 detector in sale. I'm sure $500 detectors are way better, but I checked out the reviews and almost everyone gave it 5 out of 5.
Virginia is the one state (commonwealth!) where it's illegal...
grrr!