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Legal Marijuana Taxes in California

California Recreational Cannabis Taxes

Recent reports have revealed that the cost of purchasing legal marijuana in California could be high enough to drive away potential consumers — and keep the black market thriving. According to a Fitch Ratings report, taxes for legal cannabis in California could be up to 45% in certain parts of the state, among growers, retailers and customers.

Consumers of marijuana in California must pay a combination of local and state taxes that will vary depending on location. In addition, sellers and growers are also taxed at a specific rate. The consumer tax rate will go all the way up to 24%  including a 15% state excise tax along with other local and state sales taxes.

Taxes for businesses will range between 1% and 20% of gross sales, or $1-$50 per square foot of cannabis plants. Additionally, farmers will be taxed at a rate of $2.75 per ounce of marijuana leaves, and $9.25 per ounce for cannabis flowers.

The Other States

Although California legalized medical marijuana over 20 years ago, recreational marijuana retailers have only recently begun to ramp up their production. The bill to legalize recreational cannabis use in California was passed over a year ago during the 2016 election, but the new legislature does not take effect until January 1, 2018.

It’s worth noting that Washington is the only one of the eight states where recreational marijuana was legalized has a higher tax rate than California, with a tax rate of 50%.

Washington and Colorado have tried multiple different tax structures resulting in conflicting results. For example, in 2015, Oregon began with a weight-based tax of a flat $35 per ounce. However, the state eventually changed this tax structure to a flat sales tax of 20%. Colorado eliminated its 2.9% sales tax, but escalated its excise tax to 15% from its former amount of 10%. This obviously raised the overall tax rate on marijuana.

Critics

The recent legislature to legalize recreational marijuana hasn’t done much to ease the controversy among citizens. The debate continues to rage on among politicians, community leaders, and private citizens.

There has been some backlash from different public interest groups and religious leaders regarding the upcoming January 1st landmark. Critics have been outspoken about the message this new legislation sends, and what the long term effects will be to California.

According to Citizens Against Legalizing Marijuana (CALM) has the following to say “We affirm the 2006 FDA finding and vast scientific evidence that marijuana causes harm. The normalization, expanded use, and increased availability of marijuana in our communities are detrimental to our youth, to public health, and to the safety of our society.”

While the critics have certainly been loud, there has also been overwhelming support for the new law. When asked for comment, one business owner in Sunnyvale said “Listen, I don’t touch the stuff myself, but I also don’t think it’s any of my business what other people do with their lives. The studies I’ve seen suggest that marijuana

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IRS Extends Certain Tax Deadlines For Bay Area Fire Victims

As wildfires continue to ravage the Bay Area and other California counties, taxes are not foremost on the mind of most victims. With a variety of tax deadlines rapidly approaching, the Internal Revenue Service (IRS) has announced a tax extension for individuals affected by the ongoing disaster.

This relief will take the form of an extension of all tax-related filing and payment deadlines starting from October 8, 2017 to January 31, 2018. This means that any deadlines between October 8 and January 31 are pushed back to the later date for this year only, amounting to approximately an extra three months for victims to get their documentation in order. This includes the deadline for making quarterly estimated tax payments, which was January 16, 2018 before the extension was announced.

In addition, tax penalties for late deposits and federal payroll excise taxes are waived for those in the affected areas during the first 15 days of the disaster period.

Businesses and individuals residing in the following California counties are eligible for this extension: Lake, Butte, Napa, Nevada, Mendocino, Yuba, and Sonoma. Additional counties may be added to the affected area in the future. Residents with IRS addresses of record in these areas will have the extension automatically applied, requiring no direct action on their part. Any eligible individual who receives either a late filing notice or late payment notice despite this announcement can call the phone number printed on their document to have it abated.

Firefighters and other relief workers who do not live in the affected area but have spent a lot of time on relief work there may also qualify for this extension. Such individuals should contact the IRS at 1-866-562-5227 to claim their benefits, as it will not be applied automatically. These relief workers must be affiliated with a recognized government agency or charitable organization in order to qualify for this extension.

Individuals with a primary residence outside the affected area maintaining a residential or commercial presence in the affected area may also qualify for the extension by calling the number above. This is likely the smallest group of eligible taxpayers though.

Taxpayers in the affected areas also receive an additional extension if they had previously filed an extension for last year’s tax returns. Tax-exempt organizations on extension through November 15, 2017 and individuals with an extension through Monday, October 16 2017 now have until January 31, 2018 to submit their returns. However, this is a filing extension, not a payment extension. Payments on 2016 tax returns will still be keyed to the original due date of April 18, 2017.

Tax law offered some relief for disaster victims before this extension was announced. For example, victims of the Bay Area fires may choose to claim any uninsured and/or unreimbursed property losses related to the wildfires in either the year the damage occurred (2017) or the year prior (2016). These are called “casualty losses” and pertain to a broad variety of natural disasters, including hurricanes. Additional tax information for

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IRS To Block, Suspend Returns Without Health Insurance Information

The IRS has something to say about Obamacare. 

As debates rage and tensions rise in Congress over the state of healthcare and whether or not the Affordable Care Act, commonly known as Obamacare, will stay in place, or face another repeal attempt, the American public now has something else to consider. The disclosure of health insurance information is an absolute requirement.

The Internal Revenue Service has announced they will be more vigilant in checking whether filers had health insurance for the filing year. In fact, they will suspend and refuse to accept any filings that do not indicate whether taxpayers had insurance. This disclosure has been required since Obamacare went into effect, but now the IRS is stressing the importance of compliance.

The Affordable Care Act requires individuals to purchase health insurance or pay a penalty for not being insured. There was a long public discussion about whether that penalty is actually a fee or a tax. Call it either; the penalty gets calculated into the taxes owed or the refund received at the end of every tax year.

The tax penalty is $695 for adults and $347.50 for children who are not covered, or 2.5 percent of the adjusted gross household income – whichever number is higher. Skipping the part about health insurance during the filing of taxes will no longer be tolerated. The tax agency says the move is meant to encourage compliance with the individual mandate part of the law.

This new policy has been announced as Americans begin to think about their tax returns and how much they may be paying or receiving once all the math is done. Anyone who counts on an annual tax refund will need to make sure all the proper health insurance information is disclosed and documented.

On the IRS form 1040, there is a line that requires filers to mark whether they had health insurance for the filing year. Checking the box that indicates there is no health insurance in place will lead filers to another box where they are required to disclose what excludes them from the individual mandate. Or, they can simply acknowledge the penalty for not having health insurance and pay the tax.

Some of the acceptable reasons for not having insurance and being exempt from the mandate include: homelessness, eviction, bankruptcy, a death in the family, and a lack of access to any affordable plans. There may be documentation required for filers who believe they are entitled to an exemption.

The IRS announced this move by sending an online notification to professional tax accountants and attorneys, telling preparers that filings would not be accepted if they neglected to include this information. The IRS noted that this could lead to delays in the processing of refunds, and said the measure would apply to returns that are filed electronically as well as paper returns.

This may bring a new dimension to the attempts by Washington to overhaul the nation’s healthcare system. The individual mandate is one of the

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Forest Whitaker’s Tax Troubles

People often get surprised when they hear about celebrities being punished for tax evasion. One might assume that celebrities with all their popularity are treated differently from other citizens, however our tax attorneys can tell you that nothing could be farther from the truth. For the IRS, everyone is the same and it treats each case purely based on its merit. No inch given, no quarter asked for. The laws are the same for everyone.

That is why it didn’t come as a major surprise when the IRS recently rejected star actor and director, Robert Whitaker ‘s plea that he be allowed to pay back overdue taxes in installments. The tax irregularities in the case of the Award-winning actor have been going on since 2013. Since the court felt that neither the actor or his representative agencies seemed to show any intent that they would ultimately pay up or showed any solid evidence that they could pay the dues, the court ruled in favor of the IRS.

Whitaker and his spouse Keisha’s joint income tax return for 2013 reported a gross income of $1,491,974. The tax liability reported was $426,812. However, only $10,579 was sent as his wage withholding. The actor is also reported to have added another $4,500 as tax payments. The IRS on its part assessed the taxes on Whitaker’s 2013 tax returns on December, 2014. This was not an audit done by the tax collection agency. It was an investigation into tax returns. Subsequently the IRS sent a ‘intent to levy’ notice to the actor.

After receiving the notice, a Collection Due Process hearing was requested by the actor’s representative. The representative cited reasons of the actor’s movie business not doing well, as well as Whitaker’s need to project a lavish lifestyle, for holding onto his position as a leading Hollywood star, which is the only way he would be able to pay his tax dues, as reasons for letting Whitaker pay his tax dues in monthly installments.

The IRS meanwhile checked on Whitaker’s tax liabilities for 2014. It found out that the actor’s wages in the year amounted to $ 1, 865,077 but his reported tax withholding was a mere $2,267. For the tax collection agency, things were seemingly going from bad to worse in this particular case. So, it asked the actor that he better improve his tax withholding, without which he can forget about negotiating an installment deal.

The actor then proposed a 72-month installment plan at $20,000 per month to clear off his IRS liabilities to the tune of $1.2 million, for 2013 and 2014. The IRS wanted the actor to pay $40,000 per month, while also paying his 2014 taxes for the deal to be fixed, which his representative did not agree to.
Subsequently Whitaker reported an income of about $2.5 million for 2014 with a tax due of over $800K. The IRS then made an easement of the actor’s income tax returns for 2014. However, the IRS officer was not aware

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Ivanka Trump Pushes For Child Tax Credit Expansion

Ivanka Trump may finally have a chance to make her mark in shaping American policy. Since formally joining her father’s administration, Ivanka Trump has yet to have any strong influence in making any major policy decisions, but that could all change with current plans to reform the American tax code.

Her efforts may work this time because of what she has learned on the job over the last seven months. What she’s doing is trying to make sure that reforms to federal income taxes include an expanded child tax credit, something she campaigned for during the 2016 election. How she is going about gaining support for her efforts has also changed, indicating that she could be successful this time around.

That change involves performing extensive outreach through private phone calls and meetings with top GOP lawmakers, which has already produced results. Senators Marco Rubio of Florida and Mike Lee of Utah are backing her efforts. Ivanka isn’t stopping there, however, as she is reaching out to prominent House Republicans, the U.S. Chamber of Commerce and the Heritage Foundation to garner more support. Another part of the effort is two dinners she’ll host at her home, one for Rubio and Lee, the other for House Republications to help cement support.

Ivanka Trump has previously operated in this manner when promoting STEM education and parental leave. She has been vocal about expanding the Child Tax credit as she feels giving parents more money while raising children will give them more flexibility in their lives while also helping them with the costs of care.

The consensus among conservative policy experts is that Trump is attempting to push through a version of the child care tax credit that will satisfy orthodox Republicans yet still pass in Congress. Michael Strain of the American Economic Institute has indicated that any Republican tax plan would have included some kind of expanded child tax credit.

Ivanka Trump’s detractors say this is another instance of her promoting pro-female and pro-family issues while producing little or no substance. Along those lines, the Center for American Progress recently gave her failing marks on issues concerning women and families. Neera Tanden, president of the left-leaning organization, pointed out that the Trump administration’s recent rollback on the Obama-era mandate requiring most employers to pay for contraception as part of their health care plans is another indication that the current administration is not favorable towards women. Analysis of issues from equal pay to paid leave, Tanden said, indicate the Trump administration is regressive on women’s issues and that Ivanka Trump hasn’t been much of a voice.

Ivanka Trump’s original idea called for tax deductions for formal child care arrangements, but those on the far right and far left hated the idea because it was geared towards more wealthier families using daycare settings. KaraMcKee of the Domestic Policy Council and Shahira Knight of the National Economic Council helped Trump move toward increasing the amount of credit and widening eligibility for the child tax credit. In

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Tax Reform Impact on the Bay Area

The largest group of real estate agents in California has cautioned that a tax reform proposal made by Republicans would diminish the appeal of purchasing a home in the Golden State. However, it has since been pointed out by economists that the effects of such a proposal could also result in a decrease in skyrocketing home prices.

Geoff McIntosh, President of California Realtors Association has suggested the Republican proposal to eliminate local and state tax deductions, including property taxes, could have a negative effect on the housing market in California and on the state itself.

Under the new proposal, the average home buyer in California could end up paying $3,000 in additional taxes each year. Only those home buyers who opt to list deductions would be impacted if the reform plan takes away their capability to subtract property taxes on the federal returns of these individuals. Some economists have stated that even if the proposed tax reforms are permitted and this makes home buying less appealing in the end, it could mean possible benefits for buyers as well.

Fred Foldvary, an economics lecturer at San Jose State University, has stated that there are a number of variables involved; however, home prices would be reduced. He goes on to say that home prices are currently propped up by subsidies that are implicit. They include property taxes, deductions for interest on mortgage and other tax benefits. The value of residential real estate is puffed up by all of these subsidies.

Our San Jose tax attorneys have researched this topic extensively, and have found that the experts say that this all comes down to the simple rules by which economics are governed. Annette Nellen, an accounting and taxation professor at San Jose State University has summed it up as being simply a case of ‘supply and demand.’ She goes on to say that if the housing demand drops, home prices could also drop.

An economist and founding partner at Beacon Economics, Christopher Thornberg, is in agreement that the prices of homes could drop. However, he questions how apparent the decline could actually be, especially considering the dramatic rise of home prices in the state of California. This is particularly true in the Bay Area where housing prices are extremely high.

Thornberg estimates that there would be a 0.5 percent reduction in home prices caused by the property tax deduction loss. He says this has to be placed in the normal context of a market in which home prices rapidly increase.

The prices for buying a home in the Bay Area have been rising, based on the region in which these homes are located. It ranges between 7 percent per annum and 15 percent per annum. This is an indication that any effect of the tax reform that could reduce home prices might be hard to notice.

Geoff McIntosh believes the proposed Republican tax reform will remove the incentive for individuals to purchase homes, diminish the middle class and increase taxes on

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Perpetrators Of Homeless Tax Fraud Face Justice In San Jose

Our tax attorneys in San Jose recently learned that identity theft and tax fraud allegations involving homeless people have become one of the latest scams perpetrated by criminal elements in San Jose.

A significant number of individuals who are eligible for tax refunds do not make an effort to file a tax return. The inaction is due to a variety of reasons, including living in shelters or just outside the mainstream society.

For this reason, scammers target homeless people and prepare tax returns based on identity fraud. As a result, tax refunds are funneled to illegitimate recipients. The perpetrators may act as a syndicate or individually. However, law enforcement officials told reporters that it is possible that some individuals charged with the offense may be unaware of the actions of their co-conspirators.

In such cases, some individuals sent to collect personal identifiable information (PID) from the homeless people may be unaware that the personal details would be used for criminal purposes.

San Jose woman pleads guilty

A 74-year-old San Jose woman known as Diep Vo recently appeared in court after being implicated in a homeless tax fraud scheme. According to the Attorney’s Office, she pleaded guilty to the charges brought against her. Federal prosecutors told journalists that the defendant was accused of stealing social security numbers from several homeless people (aggravated identity theft). She proceeded to file fraudulent tax returns.

Federal prosecutors say the elderly woman visited a couple of halfway houses and homeless shelters in a bid to acquire the identity details of people living in the centers. She allegedly promised the individuals money from a government program. The homeless people were asked to sign blank income tax return forms, which Vo later handed over to John Nguyen. The forms were later filled and submitted to the Internal Revenue Service (IRS).

The woman allegedly conspired with John and Trong Minh Nguyen to commit the crimes between May 2012 and December 2013. The trio identified people who had filed a tax return or worked in previous years in addition to visiting homeless shelters.

The co-conspirators filled the forms with bogus information with the aim to avoid arousing suspicion since they were submitting several tax returns. Using a single mailing address would have compromised their plan. According to official court documents, the trio rented a number of private mailboxes at various locations. Some of the mailboxes were rented in areas close to Senter Road in San Jose.

Approximately 1,740 fraudulent tax returns were filed by Diep Vo (also known as Nancy Vo). The fraudulent refunds totaled over $3.5 million. In May, the elderly woman was indicted by federal grand jury on three counts of aiding and abetting in filing fraudulent claims and one count of conspiracy to file fraudulent tax returns. In addition, she was indicted on two counts of aggravated identity theft. Sentencing in the matter is scheduled for November.

Vo could face a maximum sentence of five years for each count, a minimum sentence of two years for … Read More

Tax Reform May Include Upfront Tax On Retirement Savings

Our tax attorneys in San Jose have been closely following Republicans in Congress as they prepare to battle out tax reform and attempt to cut taxes. However, this leaves individuals to wonder who pays for the cuts. A solution currently being considered is an upfront tax on retirement savings. Many individuals in the retirement savings industry are concerned that Congress may decide to “Rothify” employees’ 401(k) contributions, in whole or in part.

The Fate of Future Contributions

Currently, the funds you put in a conventional 401(k) are not taxed when you contribute. Rather, the growth of the money is tax-deferred. However, when you begin withdrawing funds for retirement, these funds are taxed as standard income. The latter is the exact opposite of the way both Roth IRAs and Roth 401(k)s work. With Roth accounts, you make contributions after taxes are paid, but tax-free status comes into play regarding your gains and withdrawals. Should Congress decide to “Rothify” 401(k)s, it could enable them to regard all or some of your future contributions to 401(k) accounts as taxable income during the year the contributions are made.

Nothing New in This Approach

It is not the first time this approach has been considered: in 2014, under then House Ways and Means Committee chairman, Dave Camp, a version of this plan was discussed during conversations focused on tax reform.

Under this plan, it would be possible for you to contribute up to half of the allowed annual contribution limit before taxes. That limit is currently $18,000. Pretax status would also apply to your employer’s match; however, other monies you invest in the fund would be taxable immediately.

Tax Reform or a Fiscal Gimmick?

Because the taxes on long-term savings would be front-loaded under this plan, revenue could be raised in the short term by Rothifying 401(k)s. In fact, it was estimated that the proposal made by Camp in 2014 would raise almost 144 billion dollars over 10 years, seemingly “paying for” the permanent tax cuts desired by Republicans.

I can tell you as a tax attorney, that making such a change would result in lost money over time. This is because money collected by the federal government would decrease once employees begin making tax-free withdrawals upon retirement. According to the Committee for a Responsible Federal Budget, shifting the timing in this manner is little more than a fiscal gimmick. A spokesperson for the Committee stated that the plan would merely produce short-term savings by pushing costs into the future.

These facts and figures, however, do not really tell individuals who are saving for retirement whether the deal would be good or bad. The answer is that no one truly knows.

In a recent blog post, Nevin Adams, who works at the American Retirement Association as communications chief, noted that there is essentially no research that addresses the subject of how employers and workers might react to this plan.

However, this may soon change: The Employee Benefit Research Institute is in the process of studying

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IRS Announces Relief For Those Affected by Hurricane Harvey

In the wake of the Hurricane Harvey, our San Jose tax attorneys have learned that The Internal Revenue Service has announced hardship distribution and plan loan relief for individuals affected by the disaster. These include individuals who have their principal residence or workplace in the counties of Texas or other states that are designated for individual assistance by FEMA. (Currently, only certain counties in Texas are designated for assistance, although these can be expanded later. For a list of designated areas, visit https://www.fema.gov/disasters.) The benefits will also extend to employees who have any dependants—parents, grandparents, children, spouses—living in those affected areas. The relief will stay in place for the period of 23rd Aug, 2017 through to 31st January, 2018.

The qualified retirement plans that are eligible for relief according to Announcement 2007-11 include, among others, 401(k), 457(b), 403(b) and 401(a) plans. Loan procedures have been streamlined and hardship distribution rules relaxed for these plans. The announcement however does not allow IRA participants to take out loans, though they will be permitted to accept distributions under relaxed procedures.

The IRS’s relaxing of administrative and procedural rules related to distributions and plan loans means that the participants in eligible retirement plans will be able to receive the money more quickly than is usual. Additionally, the employees will not have to face the stipulated six month ban that applies to hardship distributions on 403(b) and 401(k).

The maximum distribution amount that can be taken out will still be restricted as per the IRS rules and regular tax rules will apply to all such distributions. However, the plan will be permitted to ignore the normal reasons for hardship distributions. If certain documentation is required for a plan to make a distribution, it can also relax this requirement. In addition, qualified plans that don’t come with provisions for loans and hardship distributions will also be permitted to make these distributions and loans given the plans make necessary amendments for such provisions by Dec 31, 2017.

Some additional relief has been announced by the Department Of Labor for benefit plans whose participants reside within the designated disaster area. This includes extension of the filling date for Form 5500, enforcement relief for delays/failures to provide blackout notices or to forward participant distributions as well as relief to certain insurance carriers and welfare plans and more.
For more information on relief announced by DLO, visit this page.

Alongside loans and hardship distributions, emergency PTO or leave- sharing plans have been proposed for employees affected by the hurricane. According to this proposal, an employer can adopt a PTO (paid time off) sharing plan and establish a PTO bank where employees can donate their PTO so that those who have been adversely affected by Harvey can access PTO in addition to their own share of paid time off. The PTO bank would be administered by the employer who retains the rights to grant additional PTO to an employee who, due to the severe hardship caused him by the natural

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San Francisco Home Owners May Take a Hit Under The New Tax Reform Plan

We all know how important the home mortgage deduction is, and as far as our tax attorneys can tell, it should be safe for the foreseeable future — even though there’s an upcoming tax reform debate.

However, this deduction doesn’t need to be completely revoked by lawmakers in order to be deemed useless by homeowners and taxpayers in San Francisco.

It seems as though lawmakers are currently trying to replace the cash flow that they would ultimately lose as a result of the trillions of dollars in tax cuts they would like to make. As a tax attorney in San Francisco, I can tell you that the mortgage deduction is one of the most expensive tax breaks we have in America. The estimated cost for the next decade is in excess of $80 billion a year.

As the law stands today, San Francisco homeowners that itemize deductions may deduct the interest they pay on their mortgage, up to one million dollars between a primary residence and secondary property. You may also deduct loan interest from home equity loans, up to $100k, as long as you’re not subject to the Alternative Minimum Tax. Seeing as how the median price for a home in San Francisco is over one and a half million dollars, these deductions are absolutely critical for home owners in the bay area.

What’s the average price of a home for the rest of the country? Not as much as you might think. A paltry $250k is the median price for a home in the United States.

So what kind of salary do you need to be pulling down in order to be a home owner in San Francisco? It’s estimated that you would need over $180k in order to own a home and make ends meet.

Under our current tax law, a lot of the expenses associated with home ownership are deductible. Eliminating these deductions could cause a hardship on San Francisco residents who rely on them in order to maintain their budget.

Of course, you don’t need a tax lawyer to tell you that any change to the mortgage deductions could cause a disruption to the housing market. In fact, the National Association of Realtors predicts that eliminating tax incentives for home ownership could cause home values to plunge across the country.

It’s been reported that we may see even more eliminations of itemized deductions that would significantly decrease the tax benefits of owning a home.

We’ve also seen reports that lawmakers are trying to increase the standard deduction, which would greatly reduce the amount of people who would itemize their deductions.

It’s important to remember that none of these laws are set in stone yet. Lawmakers are beginning to debate about what the upcoming tax reform would look like, and our tax attorneys want to make sure that the public is well informed a head of time so that you can have an informed opinion, and let your representatives know how you feel about the

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