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My question refers to the US.

Suppose I live in a village and I get vegetables from my neighbors, either as a gift or for services I do for them. I consume all the vegetables. I live off these vegetables and have no other income.

Since I need to pay taxes, then how can I do it, if I never get any money?

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4 Answers 4

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If you are obtaining vegetables from your neighbors in exchange for services that you do for them, then you are considered self-employed, and the value of the vegetables that you are receiving from them is income. (Vegetables received as a gift are not considered taxable income.)

It would take a lot of vegetables to be worth enough where you are above the threshold where you would be required to pay taxes. But if you are above the threshold, then yes, you would be required to pay taxes based on the value of the vegetables you received.

You cannot pay your taxes to the IRS in vegetables. You would need to obtain money to pay your taxes, perhaps by selling some vegetables. The fact that you consumed all the vegetables is not an excuse, any more than you would be excused from paying taxes if you spent all your money before the taxes were due.

There are commune groups that are set up to avoid taxes. This is usually done by making sure everyone's income is below the threshold where you would owe tax.

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  • Comments are not for extended discussion; this conversation has been moved to chat.
    – JohnFx
    Aug 4, 2021 at 0:30
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Suppose I live in a village and I get vegetables from my neighbors, ... for services I do for them.

https://www.irs.gov/taxtopics/tc420 You (and probably also the other party to the barter) will have to file a 1099-B.

Since I need to pay taxes, then how can I do it, if I never get any money?

If you're single, and "earning" more than $21000 in vegetables, then consider all of us very impressed. And you won't need to pay any taxes (presuming that you're single).

Of course, you wouldn't be able to pay for anything else, either, but that's outside the scope of the question (and therefore the answer).

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  • Comments are not for extended discussion; this conversation has been moved to chat.
    – JohnFx
    Aug 4, 2021 at 0:31
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If the vegetables are taxable income, then you must sell some of the vegetables for money in order to pay the taxes. Even if nobody in your town uses money and you have to drive 50 miles to a place where people do. Yes, it's stupid.

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  • People may not have a car, vegetables are perishable, people do not tend to buy small quantities from unknown sellers, finding a buyer before the vegetables turn bad is not guaranteed (this is not a house that can be put on the market for an indefinite period of time), selling vegetables without a license may be illegal. Furthermore, if you apply the answer to other services, then many services have a demand only in close-knit communities (that may go fully-bartering). E.g. local art and cuisine.
    – rapt
    Aug 4, 2021 at 15:40
  • @rapt I said it's stupid that participating in the economy is not optional. If it were up to me I would mandate that in cases like this the IRS should have to buy your cabbages. But then people who hate taxes would start trading in cabbages just to annoy the IRS...
    – user253751
    Aug 4, 2021 at 15:45
  • I do not come from the direction of hating taxes, or not wanting to participate in the economy (personally I think that taxes are necessary, since they are part of living in a society). My question is to try to understand how to live — legally, in the current legal system — without state money. Cabbage (when used for cabbage only) is proper money, since it reflects real value (unlike modern state money).
    – rapt
    Aug 4, 2021 at 15:52
  • @rapt indeed, turns out state money is not optional. The good news is that as long as the economy is functioning, it's possible to convert cabbages to state money. If that becomes impossible, the IRS will have more problems to deal with than tax collection.
    – user253751
    Aug 4, 2021 at 16:12
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You need to convert the barter to a USD dollar value

The barter is two transactions, with a USD dollar value that is reasonable. Suppose you trade $200 (reasonably) worth of computer services for $200 in vegetables. IRS treats that as you selling of computer services for $200, and you buying vegetables for $200.

The barter is then business income for both sides, however, you get to deduct the cost of goods sold and other business expenses. So for instance:

  • the computer assistance valuates to $200, but as part of that was an "internet router" which cost you $75, so that comes right off immediately, and we're down to $125 gross profit for that transaction. At the end of the year, these are added up, and then business expenses are subtracted - e.g. tools of the trade like a tablet, Safari membership, etc.
  • The farmer must declare $200 in income, but they too have business expenses. If you read the IRS literature in depth, you'll see where "farms" are the only business allowed to lose money year after year after year. (have business expenses exceeding their income). So if the farmer takes a loss for the year and pays $0 tax, IRS will not be surprised.

Note that you never have to actually handle USD in any of your transactions. If you want to do everything in barter or Bitcoin, have a field day - actually Bitcoin is a great choice because it's easy to denominate that to USD, because Bitcoin has a published and well known value in USD at the time of the sale.

To raise income to pay tax, sell something for USD

Really, a person could have the exact same problem if all their transactions were barters for "Bitcoin" because there is no difference between a vegetable and a Bitcoin in the view of the IRS. Bitcoin isn't legally a currency, it's a security.

So at some point, you will have to have some transactions that convert to USD, in order to raise the USD needed to pay the tax.

Keep in mind that you get to use "cost of good sold". Remember those vegetables? A far as the IRS was concerned, you paid $200 for them. So if you re-sell those vegetables for $200 USD, you get to subtract that CoGS, so your net profit is $0, and that is a no-tax situation.

As others noted, low income earners pay zero tax, and again, CoGS and business expenses work in your favor. You could live in a shotgun shack right next to a bright, modern well-equipped mechanic's garage where you're doing $2 million USD a year of commercial work - as long as the earnings are largely consumed by business expenses, and your net taxable income is under the minimums.

Further, if you really get into pushing and shoving, you can stay 100% USD-free by negotiating to pay the IRS in some other sort of other security that is acceptable to them. Or, much better option, you can "third-party" the deal by bringing that security to your accountant, and letting them handle the dirty dollars.

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