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Old 04-17-2018, 02:59 PM
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Default In states with legalized MJ, how is income tax handled?

Just a question that popped into my head and wondering if anyone knows. My Google fingers are broken today--

In states that have legalized recreational marijuana sales, how is income tax assessed for dispensary owners at the federal level?
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Old 04-17-2018, 04:30 PM
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Yes, the IRS wants income tax from "income from any source derived". In Washington, the State monitors marijuana sales closely, (and taxes them heavily) but since anyone involved in the business is unable to use banks like other businesses can, I'm sure there is plenty of unreported income too. The IRS has access to each State's sales tax, and other marijuana tax records, so I'm sure they are already "on the case".
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Old 04-17-2018, 04:41 PM
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So this is where I'm confused and why I asked. If marijuana sales are illegal at the fed level, how can they collect taxes on it? Is there a special concession for states that have legalized? It just boggles me that the same government entity working to throw people in jail for possession/sales of a substance can turn around and collect money off of the sale of it.

Ha! What a system.
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Old 04-17-2018, 06:30 PM
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Quote:
Originally Posted by miamac View Post
So this is where I'm confused and why I asked. If marijuana sales are illegal at the fed level, how can they collect taxes on it? Is there a special concession for states that have legalized? It just boggles me that the same government entity working to throw people in jail for possession/sales of a substance can turn around and collect money off of the sale of it.

Ha! What a system.
Different laws, different section of law. Remember, Al Capone wasn't convicted of murder, alcohol sale, mfg., distribution, loan shark ing, or any other crime in the traditional sense. He went to prison for failure to pay income tax, as happens when a person lives well above their reported income.

Section 61 of the IRC says that income tax is based on gross income, "gross income means all income from whatever source derived" and they mean whatever the source - legal or illegal.

This means that they are responsible for keeping the books and reporting and paying income tax based on gross income. And then the states have similar structures whether pot is legal or illegal.
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Old 04-17-2018, 07:51 PM
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As noted, taxes are due on ALL income, legitimate or not. In Texas, we actually had drug tax stamps for a period of time. Most of the stamps were sold to collectors, but there were SOME prosecutors who would tack on the stamp violation in the prosecution of persons with large quantities of dope.

Those who choose not to report income run the risk of a sweat if they get THE letter from the IRS. Even those of us in cash-heavy professions where the income is legit get concerned about those letters...it is the reason I have kept one of the older flatbed scanners around- I can fan the bills and have an imaged copy of what came in with a client (newer machines won't copy the last few iterations of US currency).
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Old 04-17-2018, 08:12 PM
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Different laws, different section of law. [...]
Section 61 of the IRC says that income tax is based on gross income, "gross income means all income from whatever source derived" and they mean whatever the source - legal or illegal.
Convenient.

Just never occurred to me until today. Thanks for the responses!
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Old 04-18-2018, 07:14 AM
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guessing that all banks cant accept the deposits right?
As they are federally insured.
And I assume its the same for like a credit union as well?
(pretty sure they have to have some sort of federally insured thing...)
Are community banks the same?

now that you have started the convo mia.....Ive wondered this too.
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Old 04-18-2018, 02:29 PM
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Here's a link to a Forbes article "More Banks Are Welcoming Marijuana Businesses, Federal Data Shows"
https://www.forbes.com/sites/tomange.../#5f86f9807a64

The confusion by many banks is said to be because of a concern that Attorney General Sessions and the US Justice Department will come after them if they have legal marijuana businesses as customers.

The Economist also explains the reasons why in an article "Why marijuana retailers can’t use banks". "Banks cannot handle dope money lest they fall foul of federal rules about money laundering"
Https://www.economist.com/blogs/econ...ist-explains-5
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