How Does Caregiver Income Get Taxed?

[Wings123]

I think you guys are confused...when MI says services arent taxable ....they mean sales tax fools! Example a guy cleans my pool for $100 he charges me $100 not $106 HE STILL has to pay taxes in his income. Doctors office dosent charge tax, a consultant dosent charge tax..they atill pay tax...Get it???

Also WildBill where do you read in the law that caregivers can only recoup expenses, it says clearly may recieve compensation ....that does not mean may only recoup expenses.

[motorcitymeds]

I think you guys are confused...when MI says services arent taxable ....they mean sales tax fools! Example a guy cleans my pool for $100 he charges me $100 not $106 HE STILL has to pay taxes in his income. Doctors office dosent charge tax, a consultant dosent charge tax..they atill pay tax...Get it???

Also WildBill where do you read in the law that caregivers can only recoup expenses, it says clearly may recieve compensation ....that does not mean may only recoup expenses.

I just take a set amount each month to make it easy on me numbers wise.  I have a L.L.C. and just pay that amount every month whether I have a good month or bad.  Some months I have to scramble to pay taxes others I have more than enough funds in the commercial account.  But paying off a set amount is the easiest way.  then at years end I may pay more based off the total dropped to the commercial account.  it all just depends on the numbers.

 

I think I concur with your statement.  CG's have to pay something. 

[trichcycler]

I just read this whole debate and I do find it pretty interesting.

 

Re: taxes,

Consult an accountant, period. This is a practical matter not really up for discussion if you want to stay in business for a long time.

If you're not an accountant, you don't understand the tax code, you don't understand how to finesse it either. If you make enough money caregiving to worry about this (even a little) or if it's your main/only source of income you need to file, and you need a CPA stamp on your filing. 

 

Back taxes are no joke and have brought down many small businesses and even small empires. I've seen it, you can't just file bankrupcy, your financial life may very well be OVER. In the cases I've seen, if it were me, I would seriously think about leaving the country. And I don't want to leave the country over back taxes, but believe me, the IRS can and does make lives THAT MISERABLE. 

 

Two: cost of doing business and return on profit.

20K is absolutely not an unreasonable sum to wind up paying to supply just 5 patients.

 

A proper floor drain, tiled floor, good walls (vinyl?, still haven't figured that one out), high quality lights/ballasts, hydroponic systems, mini-splits, CO2, etc, an FDA compliant facility!??! forgettaboutit. Heck 20K is a small number especially if you consider the indoor / outdoor / greenhouse space that a proper full blast operation takes up. 

 

On the other hand, I know people that are lucky to get a half P from every 1000W light they burn, of middle to poor quality cannabis, and they do it with all the latest greatest fanciest equipment possible. You can't do this without good horticultural understanding and good labor practices it doesn't matter how much you spend. 

 

Now there is a lot of good ways to save money, such as vertical growing systems (stadiums and the like), mixing up your own nutrients for pennies on the dollar, etc etc but there are many expenses that you just can't run away from. What I wouldn't tell people to do is to go pick up $20 /ea new craze seeds (that they can't market), advanced nutrients, luxor r1 hoods, etc etc there are many excesses in our industry that will never pay themselves back.

 

I figured out that a CO2 generator (250), propane tank (45), PPM monitor (250), and minisplit ($2000) would pay itself back in a single summer. And exactly that happened, so it was a good investment over the long term and now I have two cooling systems to boot!

 

2.5 oz per week or even many times a week is not an unreasonable or illegal amount for a single patient to procure from their caregiver. How to get this done will allude most, and since getting this done was explained to me by a dear friend, I will not go into it. But it is perfectly possible and 100% legal in state law to have a very large operation. My best estimate, based on years of growing and counting numbers like mad, is that it is possible to make 170K+ profit a year on a maxed out legal grow at $2000 / lb thats $125 /oz. It would take a while to get back your init investment and I don't include that in the 170K, of course. For a point of reference, myself, in the soil, after 2 years of growing, can produce a pound for a little less than $600. That's the number I used in the profit calculation but considering this is all indoors all the time, using store bought organic nutrients, and in the soil, surely this number could be brought down even further.

 

We are talking extremely well tuned fast grow hydro with impeccable patients, out-of-this world patient management, perfect self-discipline, a good understanding of production and horticulture, and no flower ups.

 

In short, just because you don't understand the math, science, botany, marketing, etc behind making big legal profits in Michigan (and having big setups) does not mean it's not possible. It's just extremely hard to be that good, I know of exactly 0 people that are - but it's a goal for myself to work on, or dream about, whatever. What I'm saying is it's mathematically possible, and I've figured it out using my own ACTUAL EMPIRACLE DATA, and completely within the scope of STATE LAW.

 

Yes. Just selling to 5 patients

Yes. no more than 15 ozs TOTAL at a time that includes drying curing (spoiler alert, you can't cure and you must quick dry)

Yes. no more than 72 plants

Figure it out, perpetual harvests, the right patients, enough space, and lots of math.

 

What the feds, municipalities, local PD, and what the rambo's will say and do about it well, that's another story.

[Celliach]

Caregiver services are non-taxable.  Caregiver profits are.  That means you're not liable to collect sales tax.  Electricians, mechanics, plumbers, etc. still pay income tax, but they don't charge any sales taxes to their customers unless the charges are for parts.

[Wild Bill]

Also WildBill where do you read in the law that caregivers can only recoup expenses, it says clearly may recieve compensation ....that does not mean may only recoup expenses.

 

MICHIGAN MEDICAL MARIHUANA ACT (EXCERPT)

333.26424 (3) (e) A registered primary caregiver may receive compensation for costs associated with assisting a registered qualifying patient in the medical use of marihuana. Any such compensation shall not constitute the sale of controlled substances.

 

com·pen·sa·tion 1. The act of compensating or the state of being compensated.

2. Something, such as money, given or received as payment or reparation, as for a service or loss.

 

prof·it  1. An advantageous gain or return; benefit.

2. The return received on a business undertaking after all operating expenses have been met.

 

A caregiver does not make a profit, a caregiver is reimbursed or re-paid for costs associated with growing the patients medicine.

 

It does not say that a caregiver may receive compensation for costs plus a profit.

 

Charging for your time does not make it a profit because that time could be spent making money elsewhere. Man hours are counted as expenses not as income.

 

You can ask for compensation for utilities, genetics, time spent tending the plants etc. but not a profit margin on top of that.

 

Example: Caregiver expenses (utilities, nutes etc.) are $500 per month, caregiver works in garden 40 hours per month and charges $10 per hour as compensation. This would work out to $900 per month, none of which is profit.

 

If you charged $900 plus 5% markup then the $45 would be profit and as such would be taxable.

 

If it is not profit it is not taxable. If for some odd reason you do show a profit you might want to check into business deductions like depreciation of assets.

 

I owned a business for years and rarely had to pay any tax to speak of. You can always take whatever amount that would cause you to have a tax liability and spend it on a company picnic or employee bonuses and the profit disappears.

 

This IRS publication might be of some help. 

 

http://www.irs.gov/publications/p535/ch01.html

 

Many large businesses bring in millions of dollars every year, have well compensated employees and obscenely well compensated executives, but never show a profit. If you are showing a profit I would recommend that you either tweak your business plan or hire a competent accountant.

 

(Might not hurt to take some business classes, particularly law and accounting.)

Edited September 25, 2013 by Wild Bill

[michaelscott]

Wow, this thread gave me a good laugh. Some really bad advice is being put out here and really hope folks consult a CPA if they're earning or supplementing a living by being a caregiver.

[CedarSpringsCG]

MICHIGAN MEDICAL MARIHUANA ACT (EXCERPT)

333.26424 (3) (e) A registered primary caregiver may receive compensation for costs associated with assisting a registered qualifying patient in the medical use of marihuana. Any such compensation shall not constitute the sale of controlled substances.

 

com·pen·sa·tion 1. The act of compensating or the state of being compensated.

2. Something, such as money, given or received as payment or reparation, as for a service or loss.

 

prof·it  1. An advantageous gain or return; benefit.

2. The return received on a business undertaking after all operating expenses have been met.

 

A caregiver does not make a profit, a caregiver is reimbursed or re-paid for costs associated with growing the patients medicine.

 

It does not say that a caregiver may receive compensation for costs plus a profit.

 

Charging for your time does not make it a profit because that time could be spent making money elsewhere. Man hours are counted as expenses not as income.

 

You can ask for compensation for utilities, genetics, time spent tending the plants etc. but not a profit margin on top of that.

 

Example: Caregiver expenses (utilities, nutes etc.) are $500 per month, caregiver works in garden 40 hours per month and charges $10 per hour as compensation. This would work out to $900 per month, none of which is profit.

 

If you charged $900 plus 5% markup then the $45 would be profit and as such would be taxable.

 

If it is not profit it is not taxable. If for some odd reason you do show a profit you might want to check into business deductions like depreciation of assets.

 

I owned a business for years and rarely had to pay any tax to speak of. You can always take whatever amount that would cause you to have a tax liability and spend it on a company picnic or employee bonuses and the profit disappears.

 

This IRS publication might be of some help. 

 

http://www.irs.gov/publications/p535/ch01.html

 

Many large businesses bring in millions of dollars every year, have well compensated employees and obscenely well compensated executives, but never show a profit. If you are showing a profit I would recommend that you either tweak your business plan or hire a competent accountant.

 

(Might not hurt to take some business classes, particularly law and accounting.)

Profit as a business is none.  Income as a CG is income and is taxable, even though it isn't profit.  Best advice, consult a CPA if income (after expenses for lights, nutes, etc, but not labor) are over $600 a year from each source.  (I think they raised the limit, so $600 isn't accurate anymore, but still, a CPA should know)

[Celliach]

Wow, this thread gave me a good laugh. Some really bad advice is being put out here and really hope folks consult a CPA if they're earning or supplementing a living by being a caregiver.

 

You're absolutely right!  Let me see if I can clear some things up.

 

There are two income taxes that need to be paid, state and federal.  Let's start with state.  Since MMJ is legal according to state law, caregiving is a legitimate business.  You can claim all growing expenses, fertilizers, pots, new lights, etc., as deductions from your state income tax.  You also have to claim all the money made from caregiving.  You do not have to charge sales tax, or be responsible for collecting it, because services are not taxed with a sales tax in Michigan, and caregiving is considered a service by the law.  You aren't selling MMJ to your patients, you're giving it to them, and being compensated for your time and expenses growing it.

 

Now on to federal income tax.  Since MMJ is not federally legal, you CANNOT deduct any growing expenses from your income.  Plus, you still have to pay for any money that was given to you.  Example:  If you were paid $2000 for the year for your services, you can't deduct the cost of fertilizer, new lights, electricity, etc. but you still have to claim the whole $2000 on your federal income tax form.  the federal government doesn't collect sales tax, so you don't have to worry about that.

 

I hope that clears somethings up for everyone.

[motorcitymeds]

You're absolutely right!  Let me see if I can clear some things up.

 

There are two income taxes that need to be paid, state and federal.  Let's start with state.  Since MMJ is legal according to state law, caregiving is a legitimate business.  You can claim all growing expenses, fertilizers, pots, new lights, etc., as deductions from your state income tax.  You also have to claim all the money made from caregiving.  You do not have to charge sales tax, or be responsible for collecting it, because services are not taxed with a sales tax in Michigan, and caregiving is considered a service by the law.  You aren't selling MMJ to your patients, you're giving it to them, and being compensated for your time and expenses growing it.

 

Now on to federal income tax.  Since MMJ is not federally legal, you CANNOT deduct any growing expenses from your income.  Plus, you still have to pay for any money that was given to you.  Example:  If you were paid $2000 for the year for your services, you can't deduct the cost of fertilizer, new lights, electricity, etc. but you still have to claim the whole $2000 on your federal income tax form.  the federal government doesn't collect sales tax, so you don't have to worry about that.

 

I hope that clears somethings up for everyone.

Don't forget that if they are reporting Income they have to pay Unployment taxes, state and federal.  And pay monthly to the feds.  Most CPA's will do it via EFT transfer.  This is how I have done it.

 

If you have a company set up you have to pay the employer tax match dollar for dollar.  i think it was 14.1% last time I checked. ...ballparked roughly.

 

There is alot more to it thatn meets the eye when paying taxes.  You have quarterly filing, monthly., and ofcourse yearly.

 

All reasons why most just do not report earned income.  But hey who am I to judge...  to each his own.

Edited September 25, 2013 by motorcitymeds

[CedarSpringsCG]

Don't forget that if they are reporting ZIncome they have to pay Unployment taxes, state and federal.  And pay monthly to the feds.  Most CPA's will do it via EFT transfer.  This is how I have done it.

not true.  Self employed you don't have to pay unemployment, and state adn federal are only if you make a certain amount per quarter.

[motorcitymeds]

not true.  Self employed you don't have to pay unemployment, and state adn federal are only if you make a certain amount per quarter.

I have a L.L.C.  technically I am self employed and still have to pay.  But hey not here to argue..to each his own.  Let them figure it all out on their own .  If they get popped for something they will get a letter from the IRS...lol....

 

I am not a CPA so depending on how they classify their gig that is how they get taxed.  I think in all reality though let the CPA's advise them.  That is the best route we all are sidline quarterbacking this issue. 

 

i would hate to see some dude set up a company then owe money because they did not get proper advice from a professional.

[CedarSpringsCG]

I have a L.L.C.  technically I am self employed and still have to pay.  But hey not here to argue..to each his own.  Let them figure it all out on their own .  If they get popped for something they will get a letter from the IRS...lol....

 

I am not a CPA so depending on how they classify their gig that is how they get taxed.  I think in all reality though let the CPA's advise them.  That is the best route we all are sidline quarterbacking this issue. 

 

i would hate to see some dude set up a company then owe money because they did not get proper advice from a professional.

Yeah, I have an LLC as well, and paid tons into unemployment, but not for myself, only my employees.  If you list yourself as an employee, and pay yourself as such, then you would pay unemployment, but as an officer/Member of an LLC you aren't required to do so.

 

Just all depends on how it is set up.  If you get a paycheck, you pay unemployment.  So I guess you are more correct

 

And we all agree, if you question it, ask a CPA.  If you make more than $600 a year, ask a CPA.

[motorcitymeds]

Yeah, I have an LLC as well, and paid tons into unemployment, but not for myself, only my employees.  If you list yourself as an employee, and pay yourself as such, then you would pay unemployment, but as an officer/Member of an LLC you aren't required to do so.

 

Just all depends on how it is set up.  If you get a paycheck, you pay unemployment.  So I guess you are more correct

 

And we all agree, if you question it, ask a CPA.  If you make more than $600 a year, ask a CPA.

Yes, I am the sole member and take payroll that is why i pay...LOL...thanks for clarifying that...I was about to call my CPA..haha

 

So messed up that I pay unemployment and can never draw on it...grrr

[Celliach]

I have a sole proprietorship.  I don't make that much money, usually under 5k, and only file annually.

[michaelscott]

You're absolutely right!  Let me see if I can clear some things up.

 

There are two income taxes that need to be paid, state and federal.  Let's start with state.  Since MMJ is legal according to state law, caregiving is a legitimate business.  You can claim all growing expenses, fertilizers, pots, new lights, etc., as deductions from your state income tax.  You also have to claim all the money made from caregiving.  You do not have to charge sales tax, or be responsible for collecting it, because services are not taxed with a sales tax in Michigan, and caregiving is considered a service by the law.  You aren't selling MMJ to your patients, you're giving it to them, and being compensated for your time and expenses growing it.

 

Now on to federal income tax.  Since MMJ is not federally legal, you CANNOT deduct any growing expenses from your income.  Plus, you still have to pay for any money that was given to you.  Example:  If you were paid $2000 for the year for your services, you can't deduct the cost of fertilizer, new lights, electricity, etc. but you still have to claim the whole $2000 on your federal income tax form.  the federal government doesn't collect sales tax, so you don't have to worry about that.

 

I hope that clears somethings up for everyone.

Well said

[trichcycler]

Bump

 

thanks rebel!

 

According to the Michigan Dept of Treasury 2011, caregiver services are non-taxable.

[trichcycler]

that's the form I copy/pasted

[trichcycler]

ok

[trichcycler]

do we have any legal precedent allowing us to report this caregiving money as income when there is no sale involved, and the Act has specifically said it was not a sale?

and I might add we did not differentiate between state income tax, and federal income tax. Fed tax cannot be paid while earned selling an federally illegal substance I understand? state tax can be paid this way, as a "service" fee, or whatever, but paying that seems redundant when there is no sale to tax either personal item or service? Do we have a resident tax man, accountant or CPA available to ask these questions of here ?

 

thanks

[Habenero]

Actually GM federal tax can be paid on money illegally gotten. You just can't deduct expenses. That's how they got capone in the end. Not from his organized crime stuff but from tax evasion for the income made illegally. Just claim it as income from some other source. Maybe hobby income or something. Ask a tax accountant or lawyer. If you read the Wikipedia on capone you'll see that it says the supreme court ruled that illegally obtained income has to be reported and that you have no 5th amendment privilege from reporting it. Prolly would have a 5th am privilege from saying where it came from but not from reporting it. But yeah ask a lawyer don't take my advice because I'm not too bright.

[Willy]

Its not income, it is renumeration on monies, that have already been taxed, on maintenance costs,  tax has been paid on the purchases from stores..but however you look at it , your getting money back from what you have already spent.. JMHO but either way I dont see a profit much anyway.. a few bucks, dinner out perhaps, and that bigger steak when i go shopping.... GC life hasn't made me financially ahead of the crap disability check i get.. and we all know how much that is ..

 

Using the nutrients that i use, i find that cost is around 1600 a year, not withstanding, lights, electric.. just paid 720. electric this very day.. so thats around 2300 cost.. lets see, couple free zips a month to paitent number one...xxx to patient number 2,  free again, for patient number2 but , well they do chuck me a few bucks when they can...patient number three, they make oil for them selves.. so they use a bit more than the others...it varies..there cost is 150. cause of the amount they need.. however i feel my time and risk is worth something.. ... so there ya have it..and only the free patients use the amount that was originally agreed on.. Like i'll take two a month.. lol well that dont happen much.. 

 

so figure the costs plus the income.. barely what is put out.. like i said a bigger steak at the food line...

And all the meds i need for me.. thats the winner right there..all i can say is profit, what profit??

Edited September 24, 2014 by Willy

[Habenero]

You can consider it covering costs but if you get audited uncle sam ain't gonna agree unless the numbers add up. Especially if one of your costs is the value of your time. That = income. If you're going to call it costs then get one o' them big envelopes and save receipts and don't live beyond your means like capone did.

[Willy]

ok i'll put that bigger steak back...

[Habenero]

Eat the bigger steak bro. Just buy it with cash ;)

[Highlander]

do we have any legal precedent allowing us to report this caregiving money as income when there is no sale involved, and the Act has specifically said it was not a sale?

and I might add we did not differentiate between state income tax, and federal income tax. Fed tax cannot be paid while earned selling an federally illegal substance I understand? state tax can be paid this way, as a "service" fee, or whatever, but paying that seems redundant when there is no sale to tax either personal item or service? Do we have a resident tax man, accountant or CPA available to ask these questions of here ?

 

thanks

 

 

Problem is, the act doesn't say it isn't a sale.  It says it isn't a sale of a controlled substance.  Statutory Interpretation 101 - all words are there for a reason and mean something.

 

If you interpret "not a sale of a controlled substance" to mean the same thing as "not a sale" then that would make the words "of a controlled substance" unnecessary, extra words added for no reason.  A statute can't have extra/unnecessary words.  So by basic principals of statutory interpretation, "not a sale of controlled substances" means something different from "not a sale." 

 

A more solid interpretation of this would be that a CG receiving income is a sale, but not a sale of controlled substances.  Even the SC said that CGs can sell to patients.  So there is no question that the act allows for sale of marijuana and defines such an activity as a sale.