Got into an argument with someone that thinks the US states and fed income tax authorities plan on going after growers of marijuana for their own private use because they aren’t paying income tax on the value of their crop, that they are not selling or bartering with but using personally. That the value of the crop over and above the light setup and hydroponics set up and electricity used is income that can be taxed.
I argue that a crop grown for personal use and never sold or used for barter is not income.
I think that is paranoid fear-mongering. Commercial growers are taxed, heavily. Costs passed on to buyers. In Colorado, you can have up to 6 plants, only 3 of which can be mature. Trying to tax on this scale is laughable. IMO, it would essentially be the same as trying to tax me for the 6 heirloom tomato plants I have producing tomatoes.
I think the OP is asking whether the principle involved is correct not whether it’s a practicable idea.
If I own a cow and it produces a hundred gallons of milk every year, which I consume and don’t sell, do I have to figure out what I would have paid to buy those a hundred gallons of milk and report that amount as income? I don’t know.
Suppose I don’t actually consume the milk? Maybe I’m lactose intolerant and I just keep my cow as a pet. I milk her every day but I dump the milk on to the ground, essentially treating it no differently then I treat her other waste products. Do I still have to report the value of that milk as income?
Taxable income. Did you have any income from your cow’s milk? Do I have any income from the tomatoes I grow? Obfuscation is fine when there is a reason for it.
If this person’s claims were true, most Americans would have to fill out Schedule C. And considering that most people think accounting involves witchcraft, that sounds like a disaster. And if the government could tax personal use then these people could deduct the expenses, which aren’t cheap for marijuana production.
You buy milk, which you pay *sales *taxes on (unless you live in Oregon or something). Do you then pay income taxes on that purchase?
There is no federal income tax imposed on farmers who grow crops. Only on farmers who sell (or barter) crops.
But 20 states require a tax stamp to be purchased and placed on any marijuana you have in your possession. Not many people comply with these laws, but if you are busted for possession it’s just another tool that they can use to prosecute you with.
Also the federal Marihuana Tax Act of 1937, which was repealed in 1970, required you to purchase a federal tax stamp for any marihuana [sic] that you might have in your possession.
To get around the Fifth Amendment problems, the state tax stamp laws have been written to allow you to purchase the stamps anonymously. Images of state marijuana tax stamps.
That’s not strictly true. If I give you a car, for example, you’re supposed to report the value of the car as income you received even though there was no money exchanged.
That depends on why you’re giving the car away. An actual gift is not reported as income. (OTOH, a car that you gave away in a contest to promote your car dealership would be.)
Is there some vehicle exemption I am missing? Gifts can be taxable to the person who gives the gift, subject to annual and lifetime minimum limits. In other words, if I were a high-roller and gave you $50,000, I would/may owe taxes.
And if you gave away all of your money and could not pay your taxes or if for some other reason the IRS could not collect the tax from you, the recipient of your gift would be liable:
The gift thing was covered, but if I won a car in a contest, it would be taxable. But the crop here wasn’t won in a contest, it was created by the person.
It’s more like winning a junker car in a contest that’s worth $50, then spending a year of toil turning the junker into a fine automobile that I use personally. Do I then have to pay tax on the valuable car I now own, just as if I won such a car in a contest?
It seems perfectly ridiculous. However, I fully expect the Feds to go for it, since it’s the War on Drugs™.
Even if you sold it or used to barter it would not be income. Income implies you are getting monies for free, or on a risk free investment.
When I go to work, I trade my time and my efforts in return for $$. This isn't income either.
Be that as it may, according to most governments this IS income. They have done a good job in convincing a lot of people it is too, so I wouldn't be surprised if what you are describing they will try to get away with, and might succeed too.
But to your argument - imagine if you had a fruit tree that you used only for yourself or your family, and never sold or bartered the fruit from the tree to anyone else. When someone comes in and demands you pay an income tax on the fruit of tree - what are they basically doing? They are claiming ownership of the tree and the fruit of the tree and only allowing you to use it with their permission.
Seriously, this makes as much sense as having a tax levied on your tomato patch contents, or the number of pints of strawberries you grow in your yard, or how many apples you get from your tree!
You don’t owe income tax on assets until income is “realized”, meaning, transferred in exchange for something of value (selling or bartering.) For example, say you buy a painting at a yard sale for $5 and the painter then becomes famous & dies & it’s now worth $1M. You owe no tax. Sell it or trade it for a villa, you now owe tax.
Same for the cow and milk. If you don’t sell or barter it, no income tax. (Exception for gift taxes covered above.)
I don’t actually expect too many others to find it useful. It may seem strange, but it makes sense if one stops to think about it.
I once explained it in as simple way as I can to a mechanic friend of mine.
“I will scratch your back for 30 seconds, if in return you scratch my back for 30 seconds”. If he agrees and we scratch each other’s backs, has either of us earned “income”? It was simply a trade of a little time and effort. I cannot say I received anything for free, as I had to put an equal effort out to get what I wanted.
However, what if I said: "I will scratch your back for 30 seconds for $5 dollars", and what if his price is the same if I ask him to scratch my back for 30 seconds?
Now have either of us earned "income"?
Most governments will say yes. They claim rights over your labor in the form of taxes by calling trade "income".