Wouldn't selling trigger that punitive tax rate the first poster mentioned though? Wouldn't that be worse than just dealing with the annual reporting?

Yes, selling will trigger the tax event at potentially the highest rate plus interest charges if you're using the default PFIC method. However, it's a one-time pain versus ongoing compliance costs and headaches. If you can make a QEF election for the current year before selling, that might reduce the tax impact somewhat. Or if you've only held them for a short time, the interest charges might not be too severe. I did the math and realized that even with the higher tax rate on selling, the amount I'd save in accounting fees over the next decade made it worthwhile to just take the hit and simplify my life.

I use MTM for my Australian ETFs. You can only make the election on a timely filed return for the year, and once you make it, you're stuck with it. The upside is you report gains/losses annually as ordinary income (no special PFIC tax rates). The downside is you can't claim losses beyond your gains from other MTM PFICs. It's way less complicated than the default method though.

7 Does the Wage and Income Transcript show state tax withholding too? Or just the federal stuff? I'm worried about both returns.

11 The Wage and Income Transcript only shows federal information, not state withholding. That's an important limitation to be aware of. For state withholding information, you'll need to contact your state tax agency directly to see if they offer a similar transcript service. Some states do have their own wage reporting systems, but it varies widely. You might need to use your federal transcript plus your bank records to make a reasonable estimate for your state withholding if you can't get the actual W-2.

1 I hadn't thought about contacting the payroll company directly! That's a great idea. I think they use some service called Payday or something similar... I'll have to ask my coworker. Would I need specific login information or can they look me up by SSN?

Is this still true with all the recent changes to federal cannabis policy? I thought things were changing with banking and taxes.

Yes, it's absolutely still true. While there have been some banking improvements with the SAFE Banking provisions, Section 280E is still very much in effect and will remain so until cannabis is rescheduled or descheduled at the federal level. The recent policy changes have mainly affected banking access and research, but the tax code restrictions remain unchanged. Any legitimate PE firm in the cannabis space should be building their financial models with 280E limitations factored in, resulting in effective tax rates that can reach 50-70% depending on the operation's structure. Always ask to see their tax assumptions when reviewing projected returns.

Thanks for bringing this up - honestly I haven't done as much due diligence as I probably should. They did provide an investment memorandum but I haven't verified SEC registration or the actual farm ownership. Do you have suggestions for what specific documents I should be requesting or how to verify their legitimacy?

Absolutely. Request their Form D filing with the SEC (all private offerings should have this), check the backgrounds of all principals through FINRA BrokerCheck, and get proof of the actual cannabis licenses they hold or have applied for. Also ask for references from current investors, and ideally visit the actual operation if possible. Request their detailed tax strategy document specifically addressing 280E issues - legitimate operators will have this prepared. Finally, have an attorney experienced in cannabis review all documents before transferring any money. The extra $1-2k in legal fees could save you from a total loss on your investment.

Do you need receipts for all of these? I did some freelance work last year but was terrible about keeping records. Can I still claim some of these deductions?

You should ideally have documentation for all business expenses, but the level of documentation varies. For things like home office, you need to know the square footage. For mileage, you should have a log of business trips. For expenses like internet and phone, you can calculate the business percentage based on reasonable usage. If you don't have exact receipts but have bank or credit card statements showing the purchases, that can work too. The key is being able to show the expense was real and business-related if you ever get audited. For this year going forward, I recommend using a free app to track expenses or even just a simple spreadsheet. It makes tax time so much easier!

I used Direct Pay last year. When you go through the steps, you select "Form 1040" and then "Tax Return" or "Balance Due" as the payment type (I used Balance Due). Then select the right tax year. It was actually easier than I expected. Just make sure you keep the confirmation number they give you after the payment processes. I also took a screenshot of the confirmation page just to be safe.

Do you know if they offer any sort of discount or special features for seasonal businesses? Since tax prep has that huge Jan-April rush and then slower periods.

They don't have specific seasonal business features that I know of. But their transaction limits are fairly generous which handles the busy season well. During slower months, you can easily maintain the minimum balance to avoid fees since you're not drawing as much from the account. The mobile app is also really good for depositing client checks which saves tons of time during the busy season when you can't step away to visit a branch.

Square's great but their transaction fees add up. 2.9% + $0.30 per transaction means you're losing like $3-4 on each $100 payment. Better to encourage direct bank transfers or checks.