Bartering for Beer

[claponsie]

Hey everyone,

I recently heard about a brewery that kept a ledger behind the bar for contractors who were paid in beer. For example, the brewery hired a snow plow who was paid out monthly in a beer tab. I would like to create something similar, but I am curious about the legalities of such a system. In Michigan, we have strict laws against giving away free beer, but I think I would argue that the beer isn't being given for free because the contractor is providing a service with a dollar value. I'm curious if there are other breweries who implement similar systems. I have a guy who washes our windows, and we pay him in cash, which he subsequently uses to buy our beer. I'd rather just give him a beer budget. Besides that, there have been a number of people who have helped us along the way, and continue to help us with renovations and other work. Are there any laws I should be aware of if I want to pay somebody in a beer budget?

Thanks,
Chris

[Scott M]

Not sure about your State, but Barter is taxable by the Federal government. Non payment of taxes on that "given" value could get sticky for your contractor, window washer, janitor, etc. should they "the gov" catch wind of it.

I wouldn't risk my brewery over it, but; that is your business...

[claponsie]

Not sure about your State, but Barter is taxable by the Federal government. Non payment of taxes on that "given" value could get sticky for your contractor, window washer, janitor, etc. should they "the gov" catch wind of it.

I wouldn't risk my brewery over it, but; that is your business...

So basically, you're saying that bartering is considered a taxable income, which makes sense. How is this different from when they are paid out cash? The contractor gives you the invoice, you write them a check or pay them cash, and what happens after that is their responsibility in terms of paying tax. Suppose instead of writing a check, you issue them a gift certificate or other line of credit for the same dollar amount. Wouldn't it be their responsibility to pay tax on the income regardless as to whether or not the sale was cash or bartering?

[Scott M]

The gift certificate sounds like a viable work around. Just divert the tax liability to the recipient in a justifiable manner. But, I would consult a tax professional before undertaking anything other than direct payment by cash or check.

The Gov is very unforgiving....

[claponsie]

The gift certificate sounds like a viable work around. Just divert the tax liability to the recipient in a justifiable manner. But, I would consult a tax professional before undertaking anything other than direct payment by cash or check.

The Gov is very unforgiving....

Haha, true. I'll check with my CPA.

[RichFellows]

Considering the IRS recently started cracking down on free lunches being given to staff by companies and wanted to tax that I'd say they'd be all over you if you were giving away beer as payment. If they are getting paid in cash or beer it is irrelevant, it's income and needs to be reported/taxed. I'll bet these guys don't want to pay taxes on free beer and would rather get cash, pay their taxes and then buy beer. And trust me, you'll want to do the same. Granted there are probably tons of people that get away with this on a regular basis but on the off chance you get caught you could lose tons of money in fines or lose your business.

[rdcpro]

Considering the IRS recently started cracking down on free lunches being given to staff by companies and wanted to tax that I'd say they'd be all over you if you were giving away beer as payment. If they are getting paid in cash or beer it is irrelevant, it's income and needs to be reported/taxed. I'll bet these guys don't want to pay taxes on free beer and would rather get cash, pay their taxes and then buy beer. And trust me, you'll want to do the same. Granted there are probably tons of people that get away with this on a regular basis but on the off chance you get caught you could lose tons of money in fines or lose your business.

Can't you just issue them a 1099 for the value of the beer? You have to pay tax on this beer anyway.

Of course, you should probably let them know to expect one when you're negotiating this.

Mike

[JustinDCrawford]

The best thing that I can recommend would be the gift certificate idea. Issue them a gift certificate for the value of their service and just keep track on the back of the remaining balance. That was you are covered because you are required to pay the tax on the gift certificate, I believe. Then again I'm not a lawyer, I'm a brewer. Russell Everett would be useful right now.

[Bainbridge]

Haha the reports of my usefulness are greatly exaggerated...

But yeah, gift certificates are good because you have an agreed and set dollar value rather than "How many pints is a countertop worth? How many have you had already over the last how many months again?", you can keep track in accounting easily on your end, and it pushes the onus over onto them to report it on their own income taxes, and hey, if they never cash it in or lose it or move or something then sweet, free money!

[mashpaddled]

You really have to watch the reporting on making payments in-kind to contractors. If you are taking deductions for the payment then you need to check with your CPA about whether it's appropriate to claim the cost of the beer or the retail value of the beer as a deduction. You also need to make sure you are claiming the beer as a payment on any 1099 you issue to your contractors. It's up to your contractors to properly report their own taxes but you do not want to be complicit in helping them avoid paying income tax. From there you have to think about whether your contractors will appreciate taking a payment as beer and then paying taxes on it.

Your state and local laws may prohibit payment in-kind when the payment is made with alcohol. They may also construe these arrangements as giving away beer for free and that may also be prohibited in your jurisdiction.

[jebzter]

You write him a check, he writes you a check. Neither of you cash them, or you both cash them. The net is zero, and there is a nice paper trail, and it wont be an "in-kind" barter. Then you can track the sales of the beer up to the value of the check however you wish.