Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

Trimmigrants, Trades and Taxes

For decades, a subculture of migrant workers have flooded California counties every year to make good money trimming marijuana plants. Known as “trimmigrants,” these individuals have made as much as $500/day and up to $15,000 in cash and/or product during the fall harvest — and we would be surprised if any of them ever paid taxes on that income.

With cannabis legalization, the trimmigrant heyday is coming to an end. Aside from the growing market availability of automated trimming machines which are threatening to make manual trimming obsolete, marijuana regulation is putting an end to the ability of the now state-legal cannabusinesses to hire and pay people under the table.

Trimmers are now being paid through salaries or issued 1099’s, and are expected to pay their fair share of taxes – both on their cash income and on any product they receive as compensation. If a trimmer does not provide their tax identification number to their employer, backup holding may also apply.

Taxation of bartered income

The exchange of products and/or services, otherwise known as “barter,” may take place informally between individuals or businesses, or through a third party barter exchange company. For tax purposes, the services or property exchanged must be valued in advance by the parties involved – this is usually the fair market value unless shown to be otherwise.

The fair market value of the service or product received as barter must be included in the taxpayer’s gross income for the year it was received, and is reported on Form 1040, Schedule C. In barters involving a third party barter exchange company, the company is required to issue a Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, to their clients and to the IRS, unless it engages in less than 100 transactions per year, the exchange was made with certain exempt foreign persons, or the exchange involved property or services valued at less than $1 (see IRS Publication 525, Taxable and Nontaxable Income).

All others who exchange services and products (including marijuana growers and trimmers) generally need to file a Form 1099-MISC.

Tax lawyers for the marijuana industry

The attorneys and accountants who comprise the Cannabis Law Group at Moskowitz, LLP are committed to the needs of the evolving cannabis industry. For help with all your marijuana taxation issues, contact our San Francisco offices today.

Filing Your Own Return

Married Tax Filing Status

Should We File a Joint Return or Married Filing Separately?

In our last post, we reviewed the main advantages and disadvantages of joint tax returns for married couples. This post will focus on when a married couple should consider filing separately, and special considerations if they reside in a community property state.

When to consider filing separately

Following are the main reasons that married individuals file separately:

  • High income. Where both spouses have high earnings, their combined income may place them in a higher tax bracket.
  • Debts. If a spouse owes back taxes, must pay child support, or has overdue student loans, filing a joint tax return could result in the IRS offsetting the other spouse’s tax refund to pay the debt.
  • Marriage problems. If a couple is going through a divorce, contemplating one, and/or one spouse is concerned about the other not reporting all of their income, they might wish to avoid liability for their spouse’s tax reporting and file their own return.
  • Income-based student loan repayment. Where one or both of the spouses is on an income-based student loan repayment schedule, the couple should have their accountant do some calculations for them. If the tax savings for filing jointly does not exceed the higher loan payments that will result from reporting their combined income, they should consider filing separately (but understand that lower payments will extend the period of the loan).
  • Itemized deductions. Sometimes filing separately is beneficial if one or both of the spouses has a lot of itemized deductions subject to an adjusted gross income (AGI) “floor,” such as medical expenses (where the deduction is limited to 7.5% of a taxpayer’s AGI) and employee business expenses (where the deduction is limited to 2% of the AGI).

Filing separately in a community property state

For married couples and registered domestic partners who file separately and reside in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin), each partner must report their separate income and half of the community income on their respective tax returns.

When filing separately, married couples should be certain to have an agreement regarding how they will calculate the reporting of their income and related expenses, and whether they will be itemizing expenses or utilizing the standard deduction. A Form 8958 must be attached to each Form 1040, which provides the IRS with an itemized list of how the allocation of each spouse’s wages, interest, dividends, capital gains and losses, deductions, and credits was made.

One or the other spouse may claim the exemption for each dependent child or children, but they may not each claim half of an exemption for a single person. For more on this topic, see IRS Publication 555.

Changing your filing status

When you file a joint return, you cannot switch to a separate return after the filing due date. If you file separate returns, however – as a single, head of household, or as married filing separately, you can usually change to a joint return at any time within three years of the filing due date (not including extensions).

Full service San Francisco tax firm

The full service tax law and accounting firm of Moskowitz, LLP is staffed by a knowledgeable and highly experienced team of tax lawyers, accountants, paralegals and support staff who have successfully prepared tens of thousands of current and delinquent individual income, corporate, partnership, trust and estate tax returns. Contact our office today to learn about our practice.